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1. Benefit-Cost Analysis (10 points) a) Consider the following two programs Program A Program B 120 90 40 30 Benefits Costs What is the cost-benefit
1. Benefit-Cost Analysis (10 points) a) Consider the following two programs Program A Program B 120 90 40 30 Benefits Costs What is the cost-benefit ratio and net-benefits for both programs? Which would the cost-benefit ratio criteria prefer? Which would the net-benefit ratio prefer? b) Now suppose you are building a power plant and you need to decide if you want to install extra reinforcements to protect against damages from large storms. The major reinforcements will decrease the risk of permanent damage in a storm, but will cost more money. The relevant values are Construction Costs Revenue From Electricity Generation Chance of Storm Damage Install reinforcements 40 million 60 million 3% Don't Install 25 million 60 million 15% What is the expected value of each option? Are the reinforcements worth in- stalling? c) Name two examples each of a situation where there is risk and situations where there is uncertainty
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