A research study estimates that the direct cost of constructing a bridge connecting two boroughs in a city is $10 million. The revenue from the tolls on the bridge is estimated to be $8 million. The dollar value of pollution from the construction is estimated to be $5 million but the dollar value of the benefit to the city's residents is calculated to be $20 million. The construction of the bridge is most likely to be undertaken by:
A) the government because revenues exceed costs.
B) the government because the total benefits exceed total costs.
C) a private firm because the total benefits exceed total costs.
D) a private firm because revenues exceed direct costs.
E) a private firm because the revenues exceed indirect costs.

Question

Quizplus · Accepted Answer

The government is the most likely to undertake the construction because the total benefits of $20 million exceed the total costs of $15 million ($10 million direct cost and $5 million pollution cost). Although the toll revenue of $8 million would not cover the full direct cost of construction, the benefits to the city's residents outweigh this factor. Therefore, the construction is financially feasible and beneficial for the government to undertake for the public's interest.

A Research Study Estimates That the Direct Cost of Constructing