The following extract is taken from a report prepared for the Auditor General for Scotland in November 2008. It analyses the case for a change to a rail service.

Additional North Berwick services and Musselburgh stops Transport Scotland identified a need for an additional evening service on the Edinburgh to North Berwick route, together with two additional stops at Musselburgh, to meet the needs of the relocated Queen Margaret University College. However, First ScotRail could not justify the expenditure as the £100,000 in costs to provide the services was greater than its likely share of revenue. The estimated revenue from the services was £172,000. Given revenue performance at the time, it was likely that First ScotRail would have to return 50 or 80 per cent of the revenue to Scottish ministers, allowing it to retain, at most, £86,000 of the revenue, resulting in a loss to First ScotRail of at least £14,000 and up to £64,600. Acknowledging that the services were required, Transport Scotland had to allow a reduction in the franchise subsidy payment to First ScotRail and an increase in the level of revenue First ScotRail could retain (specific to the service).

This was necessary in order for First ScotRail to earn enough in profit from the services to make them a viable addition.

Questions 

1 What are the relevant costs in deciding whether to provide the rail service required?
2 Is it justifiable to decide the revenue to the rail company by calculating the amount of profit needed?