Question

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 the total benefits exceed total costs.
	b.	a private firm because the revenues exceed indirect costs.
	c.	a private firm because the total benefits exceed total costs.
	d.	the government because revenues exceed costs.
	e.	a private firm because revenues exceed direct costs.

Answer 1

Here the total cost of the construction is “$10 million + $5 million = $15 million”. Now, the revenue for toll is “$8 million”. So, here the revenue is less than cost, => private firm will not come for the construction. Now, because the dollar value of the benefit to the city residents is “$20 million which is more than total cost, => the bridge will be made and government will take the responsibility.

So, here the correct answer is “A”.