CBA Cost-Benefit Analysis

Bottom line: maximize net benefit

Use the flowchart

Willingness to pay and the value of a project? DEF: max amt indiv would pay if her pmt made all the diff. Mirror image is what you'd have to pay me to get me to vote yes. Consumer surplus.

Opportunity cost. Real decisions quantify intangibles.

Cost effectiveness. Costs and benefits in different units. OK when costs are same OR benefits are same.

Project A

Level Cost Benefit Net Benefit MNB$
0 0 0
1 100 150
2 200 175
3 300 275
4 400 425
5 500 550
6 600 575

Project B

Level Cost Benefit Net Benefit MNB$
0 0 0
1 100 75
2 200 150
3 300 300
4 400 450
5 500 500
  1. Level for A
  2. Level for B
  3. B4 vs. A4?
  4. Mix of A and B with budget of 600
  5. Treat A1, A2, etc. as list of alternatives and total budget of 1000.