Suppose that a small county is considering adding a guard rail to a dangerous curve by a river. The guard rail will cost $70,000. The average damage done to vehicles that slide off the road at the curve is $10,000. It is expected that the guard rail will prevent 5 vehicles from sliding off the road during its usable life. What should the county do?
A)Install the guard rail because safety is priceless.
B)Install the guard rail because the benefits exceed the costs.
C)Do not install the guard rail because the costs exceed the benefits.
D)Do not install the guard rail at any cost because drivers can purchase private insurance for their vehicles.

Question

Quizplus · Accepted Answer

The total benefit of preventing 5 vehicles from sliding off the road is $50,000 (5 vehicles x $10,000 damage each), which is less than the $70,000 cost of the guard rail. Therefore, the costs exceed the benefits.

Suppose That a Small County Is Considering Adding a Guard