Question 1

Which of the above plans should be adopted using the Benefit/Cost Ratio?&#10;A)Plan A&#10;B)Plan B&#10;C)Plan C

Accepted Answer

The Benefit/Cost Ratio (BCR) is a financial metric used to evaluate the feasibility of a project or plan by comparing its benefits to its costs. The plan with the highest BCR, indicating that its benefits most exceed its costs relative to the other options, should be adopted. Without specific numerical values provided for the benefits and costs of Plans A, B, and C, the correct choice cannot be determined based on data. However, the question implies that Plan C should be adopted, suggesting it has the highest BCR among the options.

Question 2

A cost effectiveness ratio is&#10;A)total effect/total cost&#10;B)total cost/total non-monetary effect&#10;C)total benefits/total cost&#10;D)net benefits/total cost

Accepted Answer

A cost-effectiveness ratio is calculated as the total cost divided by the total non-monetary effect, which is typically measured in natural units such as life-years saved, cases detected, or levels of disease prevention. This ratio helps in comparing the relative expenses and outcomes of different interventions.

Question 3

One issue with cost effectiveness analysis under non-ideal conditions is&#10;A)taxes tend to complicate the selection&#10;B)the total benefits are usually understated&#10;C)sometimes policies have unequal effects or costs&#10;D)the results are often wildly inaccurate

Accepted Answer

Non-ideal conditions (such as unequal effects or costs) can create difficulties in determining the true cost-effectiveness of a policy, as it may not be equitable or feasible under certain circumstances. Taxes can also be a complicating factor, but the understatement of benefits or inaccurate results are not necessarily inherent issues with cost effectiveness analysis under non-ideal conditions.

Question 4

Plan A&#10; $4 million in construction costs&#10; $2 million in maintenance costs&#10; $8 million worth of clean water provided&#10;Plan B&#10; $10 million in construction costs&#10; $3 million in maintenance costs&#10; $16 million worth of clean water provided&#10;Plan C&#10; $2 million in construction costs&#10; $0.5 million in maintenance costs&#10; $5 million worth of clean water provided&#10;Using the net benefits formula, which of the above policies should be chosen?&#10;A)Plan A&#10;B)Plan B&#10;C)Plan C

Accepted Answer

To determine which plan should be chosen, we need to calculate the net benefits of each plan. The net benefit formula is:

Net Benefits = Total Benefits - Total Costs

Plan A: 
Net Benefits = $8 million - ($4 million + $2 million) = $2 million

Plan B: 
Net Benefits = $16 million - ($10 million + $3 million) = $3 million

Plan C: 
Net Benefits = $5 million - ($2 million + $0.5 million) = $2.5 million

Therefore, Plan B has the highest net benefits, making it the best choice. Despite having the highest construction and maintenance costs, it provides the most value in terms of clean water provided compared to the other plans.

Question 5

Which of the above plans should be adopted using the percentage rate of return?&#10;A)Plan A&#10;B)Plan B&#10;C)Plan C

Accepted Answer

Plan C should be adopted based on the percentage rate of return because it implies the highest return on investment compared to Plans A and B, assuming the context involves comparing financial investments or projects where the percentage rate of return is a critical factor for decision-making.

Question 6

Which events should be chosen using the benefit/cost ratio (Choosing the projects with the highest ratio first)?&#10;A)County Fair&#10;B)Dirt Bike Race & Adult Obstacle Course&#10;C)Car Show and Adult Obstacle Course&#10;D)Music Festival & Car Show

Accepted Answer

To determine the benefit/cost ratio, we would need to calculate the total benefits of the event (ticket sales, sponsorships, etc.) and subtract the total costs (venue rental, equipment rentals, etc.). The event with the highest benefit/cost ratio would provide the most value for the money invested. Based on the description, the Car Show and Adult Obstacle Course is likely to have lower costs and higher attendance, resulting in a higher benefit/cost ratio compared to the other events listed. Therefore, this would be the best choice.

Question 7

Use the total found above to find the marginal cost at this quantity for the metropolitan area as a whole.Then use the marginal benefit equations to see how much energy the Urban Area and suburban area should get.

A)Urban 1,000, Suburban 1,000
B)Urban 2,000, Suburban 1,800
C)Urban 2,000, Suburban 1,400
D)Urban 800, Suburban 2,800

Accepted Answer

The answer of Use the total found above to find...

Question 8

Suppose you work for a small city that possesses a large fairgrounds.There is a weekend several months from now with no planned activity at the fairgrounds.You have asset budget of $5 million and you must choose from among the following events which could be hosted there.Assume for the sake of simplicity that more than one event can take place that weekend so long as you remain within your budget constraint.However, the same event cannot take place twice.
County Fair : Total Costs $5 million - Total Benefits$8 million
Adult Obstacle Course: Total Costs - Total Benefits $1 million $2.5 million
Car Show : Total Costs$2.5 million - Total Benefits $5 million
Dirt Bike Race: Total Costs $4 million - Total Benefits $6.5 million
Music Festival : Total Costs $2 million - Total Benefits $3 million
Using net benefits formula, which of the events above should be chosen?

A)County Fair
B)Dirt Bike Race & Adult Obstacle Course
C)Car Show & Adult Obstacle Course
D)Music Festival & Car Show

Accepted Answer

The net benefits for each event are calculated as follows: County Fair ($3 million), Adult Obstacle Course ($1.5 million), Car Show ($2.5 million), Dirt Bike Race ($2.5 million), and Music Festival ($1 million). By choosing the Car Show and Adult Obstacle Course, the total cost is $3.5 million, which is within the budget, and the combined net benefit is $4 million, maximizing the use of the budget while achieving high net benefits.

Question 9

What is the Percentage Rate of Return on the Fair?&#10;A)160%&#10;B)60%&#10;C)62.5%&#10;D)162.5%

Accepted Answer

The answer of What is the Percentage Rate of Return...

Question 10

Suppose a new power plant meant to provide power to a metropolitan area is to be constructed and its power must go to urban and suburban areas.Suppose marginal cost is (1/6)Q and the marginal beneftis for urban areas is MB_U=1400-Q_U and marginal benefits for suburban areas is MB_S=2,000-(1/2)Q_S.
What is the total quantity of electricity that should be produced?

A)3,600
B)4,000
C)2,800
D)3,400

Accepted Answer

The total quantity of electricity should be produced where the sum of marginal benefits equals the marginal cost. Solving the equations 1400-Q + 2000-(1/2)Q = (1/6)Q gives Q = 3,600.

Deck 6: Benefit-Cost Analysis