Question 1 0.1 pts Suppose that the city of Lincoln is trying to decide between

Question

Question 1 0.1 pts Suppose that the city of Lincoln is trying to decide between 3 separate projects, each with an initial cost of $1,000,000. 1) Build a brand new park on the southeast side of the city. The 40,000 citizens in the area value the park at $50 on average. 2) Build a new traffic circle in a dangerous intersection. The traffic circle is expected to save the life of 0.3 people with each life being valued at $10 million. 3) Provide a subsidy to national corporation to relocate to Lincoln. The corporation is expected to provide 75 new jobs paying $25,000. What is the opportunity cost of building the traffic circle?

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Answer-

The initial investment to be made is $1,000,000.

Project 1, building a new park will give us an income = 40000*$50= $2,000,000

Project 2 building a new traffic signal will save us benefits = 0.3*$10,000,000=$3000,000

Project 3, subsidizing a national corporations has a benefit = $25000*75= $1,875,000

Hence if we consider any of the one project we will loose the other two project hence what we loose is the opportunity cost of choosing that one project.

In this case if we choose project 2 that is traffic signal then the opportunity cost =

Project 1 Income + project 2 income = $2 Million + $1.875 million = $3.875 million is the opportunity cost.

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