1. The city of Richmond is considering a public transportation project and would like your analysis of the costs and benefits. a) The transportation improvements would have the effect of permanently lowering marginal cost in a certain competitive private market from (constant) $160 to (constant) $140. You estimate that annual demand in this market is: Qd =150 %P, where @) is measured in thousands of units. Calculate the present discounted value of the benefits of the project in this private market using a 10% discount rate. b) The project will require 660 thousand hours of labor over the next year. This public employment of labor must be hired from a labor market with the following supply and demand: Private labor demand: L\" = 3860 130w Labor supply: L = 90w 100 where LP is thousands of annual hours demanded, L* is thousands of annual hours supplied, and w is the hourly wage rate. For the purposes of cost-benefit analysis, what are the costs of hiring the necessary labor resources for this project? ) Funding for this project will come from a hotel room tax. Demand in this market is Q = 850 P, where @ is annual room-nights booked in thousands, and P is the nightly room rate. Supply is competitive, and marginal cost is constant: MC = 340. There is already a $45 per night tax on hotel rooms. Show that a permanent $3 increase in this tax would raise sufficient revenue in present discounted value to fund the transportation project. What is the marginal excess burden (new deadweight loss) of the $3 tax increase? d) Does the transportation project pass a cost-benefit test? Explain. How might Richmond manage the fact that the project expenditure calculated in b) is to be paid in the present year, but the project funding calculated in ) is a stream of annual tax revenue far into the future