Suppose government can pursue up to three projects.The first has benefits of $1,080 and costs of $1,000; the second has benefits of $1,180 and costs of $1,000; the third has benefits of $1,230 and costs of $1,000.Suppose that it costs $0.20 for the government to raise a dollar in revenues.Which project(s)should the government pursue?

Question

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To determine the best project(s) to pursue, we need to calculate the net benefits of each project, which is the difference between the benefits and costs.

For the first project, the net benefits are $1,080 - $1,000 = $80. 
For the second project, the net benefits are $1,180 - $1,000 = $180. 
For the third project, the net benefits are $1,230 - $1,000 = $230.

Next, we need to adjust these net benefits for the cost of raising revenues. Multiplying each net benefit by $0.20 gives us the adjusted net benefits:

For the first project, the adjusted net benefits are $80 × 0.20 = $16. 
For the second project, the adjusted net benefits are $180 × 0.20 = $36. 
For the third project, the adjusted net benefits are $230 × 0.20 = $46.

Therefore, the government should pursue the project with the highest adjusted net benefits, which is the third project.

Suppose Government Can Pursue Up to Three Projects