Example: Benefit-Cost Analysis
Example
Problem Statement:
A state DOT is evaluating a proposed highway bypass to relieve severe downtown congestion.
- The initial capital cost to build the bypass is 2,500,000 every year in travel time and reduced vehicle operating costs.
- The project has an expected design life of 15 years.
- The state uses a discount rate of 6% for public projects.
Determine if the project is economically justified using the Benefit-Cost Ratio method.
Solution: Benefit-Cost Analysis
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Example: Benefit-Cost Ratio (BCR)
A standard method for evaluating the economic viability of a public project.
Example
Problem Statement:
A proposed highway bypass will cost 1 million annually to maintain. The bypass will save commuters 2 million annually in reduced vehicle operating costs. Using a 20-year analysis period and an interest rate of 6%, the equivalent uniform annual cost (EUAC) of the construction is calculated to be $4.36 million. Calculate the Benefit-Cost Ratio (BCR). Should the project be built?
Given:
- Annual Benefits = 2M (VOC) = $6M/year
- Annualized Capital Cost (EUAC) = $4.36M/year
- Annual Maintenance Cost = $1M/year
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Example: Elasticity of Travel Demand
Understanding how pricing changes affect ridership.
Example
Problem Statement:
A transit agency raises its flat bus fare from 1.75. Following the fare increase, daily ridership drops from 20,000 passengers to 18,500 passengers. Calculate the point elasticity of demand. Is the demand elastic or inelastic?
Given:
- Initial Price () = 1.50
- Final Price () = 1.75
- Initial Quantity () = 20,000
- Final Quantity () = 18,500
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