The city of Toledo is considering adding additional storm water storage facilities so that it will never have sewage overflows. Economists have monetized the following effects over the expected useful life of the storm water storage facilities. Assume these are the only relevant effects (in millions of dollars): Federal grant: Construction and maintenance costs: $7 Toledo residents' total willingness to pay: $4 All other's total willingness to pay: $5 Assume only the city of Toledo residents have standing. Anyone outside of the city does not have standing. The "Federal grant" is the dollar amount the city of Toledo can get from the federal government to help cover the cost of the construction. The "Federal grant" can be thought of as a federal subsidy for the local project. a. Conduct a simple benefit-cost analysis for the city. Is it efficient for the city of Toledo to build the storm water storage facilities? b. Considering positive externalities from the project beyond the city of Toledo, what is the maximum efficient amount for the federal grant subsidy? c. If everyone in the nation has standing, is it efficient for the city of Toledo to build the storm water storage facilities?
The city of Toledo is considering adding additional storm water storage facilities so that it will never have sewage overflows. Economists have monetized the following effects over the expected useful life of the storm water storage facilities. Assume these are the only relevant effects (in millions of dollars): Federal grant: Construction and maintenance costs: $7 Toledo residents' total willingness to pay: $4 All other's total willingness to pay: $5 Assume only the city of Toledo residents have standing. Anyone outside of the city does not have standing. The "Federal grant" is the dollar amount the city of Toledo can get from the federal government to help cover the cost of the construction. The "Federal grant" can be thought of as a federal subsidy for the local project. a. Conduct a simple benefit-cost analysis for the city. Is it efficient for the city of Toledo to build the storm water storage facilities? b. Considering positive externalities from the project beyond the city of Toledo, what is the maximum efficient amount for the federal grant subsidy? c. If everyone in the nation has standing, is it efficient for the city of Toledo to build the storm water storage facilities?
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter5: Investment Decisions: Look Ahead And Reason Back
Section: Chapter Questions
Problem 5.4IP
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Transcribed Image Text:The city of Toledo is considering adding additional storm water storage facilities so that it will never have sewage overflows. Economists have monetized
the following effects over the expected useful life of the stornm water storage facilities. Assume these are the only relevant effects (in millions of dollars):
Federal grant:
Construction and maintenance costs:
Toledo residents' total willingness to pay:
All other's total willingness to pay:
$7
$4
$5
Assume only the city of Toledo residents have standing. Anyone outside of the city does not have standing. The "Federal grant" is the dollar amount the
city of Toledo can get from the federal government to help cover the cost of the construction. The "Federal grant" can be thought of as a federal subsidy for
the local project.
a. Conduct a simple benefit-cost analysis for the city. Is it efficient for the city of Toledo to build the storm water storage facilities?
b. Considering positive externalities from the project beyond the city of Toledo, what is the maximum efficient amount for the federal grant subsidy?
c. If everyone in the nation has standing, is it efficient for the city of Toledo to build the storm water storage facilities?
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