CBA-review
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 |
- Level for A
- Level for B
- B4 vs. A4?
- Mix of A and B with budget of 600
- Treat A1, A2, etc. as list of alternatives and total budget of 1000.