Suppose the Army Corps of Engineers has proposed for building six dams with the
ID: 1150943 • Letter: S
Question
Suppose the Army Corps of Engineers has proposed for building six dams with the social benefits (B) and costs (C) listed as follows:
Dam B C Net Benefits B-C Ratio
1 40 20
2 25 10
3 30 20
4 10 20
5 15 10
6 15 20
a. (5 points) Compute the net benefits and the benefit-cost ratio for each project and enter these figures in the table above.
b. If the government's budget was constrained to $125 million, which project or projects should it choose in order to maximize social welfare? Briefly explain. [Note: For purposes of answering this question, assume that social costs and the government's budgetary costs are identical.]
Explanation / Answer
1)
Project
Social Benefits
Social Costs
Net Benefits
B to C ratio
1
40
20
20
2
2
25
10
15
2.5
3
30
20
10
1.5
4
10
20
-10
0.5
5
15
10
5
1.5
6
15
20
-5
0.75
2)
If the government's budget was constrained to $125 million, Project No: 1, 2 , 3 and 5 can be choosen as they yield ppsitive net benefits
Project
Social Benefits
Social Costs
Net Benefits
B to C ratio
1
40
20
20
2
2
25
10
15
2.5
3
30
20
10
1.5
4
10
20
-10
0.5
5
15
10
5
1.5
6
15
20
-5
0.75
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