The United States Department of Energy is considering a number of different nucl
ID: 1140260 • Letter: T
Question
The United States Department of Energy is considering a number of different nuclear energy plants for different parts of the United States. The Department may build as many plants as it wishes, but the total amount it can spend for land takings and construction is limited to $490 billion. A consultant hired by the Department has provided the cost and benefit data shown in Table 1 below.
Table 1 Costs and Benefits of Various Nuclear Energy Plants
Costs (Land cost and Construction cost)
Plant No.
Land takings
(billions of dollars)
Construction
(Billions of dollars)
Benefits
(Billions of dollars)
A
60
100
480
B
70
100
1020
C
80
100
720
D
100
100
1400
E
180
100
252
F
20
100
480
Which nuclear power plants would you recommend should be built? Why?
If you were an advisor to the Department of Energy, what questions would you ask the consultant regarding the information in Table 1? Why would you ask these questions?
What are the advantages and disadvantages of this method of policy evaluation?
Costs (Land cost and Construction cost)
Plant No.
Land takings
(billions of dollars)
Construction
(Billions of dollars)
Benefits
(Billions of dollars)
A
60
100
480
B
70
100
1020
C
80
100
720
D
100
100
1400
E
180
100
252
F
20
100
480
Explanation / Answer
Ans. This is an interesting question , Let's start the answer straightaway :
I would recommend that Plant Number D , B and F should be build because D costs $100 billion in Land takings and $100 billion in Construction and the Benefit which It is Providing is maximum among all the Plants ie $1400 Billion. B and F are also providing maximum benefit. This can easily be identified using the Cost - Benefit Analysis that compares the Cost of an event and the corresponding Benefit which it is providing.
IF I were the advisor to the Department of Energy , I would be asking the following questions about the table :
What is the estimated estimated time of Construction for each Plant ?
Is any other information available about Every plant that can improve decision making ?
How much biodiversity loss would be there in the Process of Land Taking ?
How to ensure that Neighboring Place would not be affected with building the Power Plant ?
What tools have you used in the estimation of Costs ?
What types of Costs are included and excluded in the Total Projected cost ?
How have you calculated the Amount of Benefits ? Tell in Detail .
I would be asking all these questions to get more broad and holistic view of each Plant. So that The Decision Making Process can become more robust and limitation free.
Advantages of using Cost Benefit Analysis
1) Cost benefit analysis can be used for both old and new projects.
2) It provides clarity in the costs of each project and benefit achieved by incurring that cost.
3) It is a very crucial part of Decision Making Process
Disadvantages of Cost Benefit Analysis are as follows :
1) It is sometimes difficult to estimate perfect future costs.
2) Various costs like Environmental costs are often neglected.
3) It does not take non monetary implications of a project like : Difficulty to the People etc.
I hope you understood the answer. Do ask in case of doubts.
A Thumsup would be Highly Appreciated !!
Best of Luck !! Keep Chegging !!
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