Quiz 16: Economic Analysis in the Service Sector


A Cost-Benefit analysis is a process by which business decisions are analyzed and helps to improve the beneficial information about the necessary and detrimental effects of public projects. Road salt  is mainly to melt snow and ice and save water from freezing. Salt lowers the freezing/melting point of water. The state of M imposed a ban on the use of road salt during icy conditions on bridges and highways. Instead of road salt, to melt the ice, it is required to use calcium magnesium acetate (CMA) which costs $650 a ton as Ice-B-Gon. a. If the state of M is successful in imposing a complete ban on road salt, it will exists some benefits and costs. From the point of view of users that is public, the benefits will be: 1.Because of complete ban on road salt, there will be a stoppage of highway corrosion which currently costs $650 would be saved and results in lower highway maintenance cost which further implies a benefit to the users in the form of less taxes. 2. Road salt helps to melt the ice but due to more usage of road salt, it will keeps on increasing the damages to vegetation and soil surrounding areas. So, due to stoppage of road salt, the land values of the surrounding areas keeps on increasing. 3. There will be a prevention of corrosion to utility lines which currently costing $150 and damages to water supplies costing $100 which results in lower utility rates. 4. It will also help in the prevention of rust on vehicles which costs $525 currently and would results in lower repair and maintenance costs and again a benefit to user with higher resale value of vehicles From the point of view of sponsor that is government, the costs will be: 1. Because the state has banned the road salt and will use calcium magnesium acetate so it would include some production costs also. It is the most effective deicer but the production cost of $650 per ton is much greater than the cost of road salt. So, to pay such production costs, the state will increase the taxes to acquirer such a huge amount. 2. CMA is one of the most expensive de-icing chemicals. It can also make roadway slippery which become hazardous for the users to use that bridges and highways and as it is bought in solid form and then liquefied earlier to application, it can refreeze. b. The state of M imposed a ban on road salt on highways and bridges because they were severely damaging the corrosion, water supplies, vegetation and surrounding areas. And the state decided to use CMA to melt ice but it was costing more than road salt. For determining the salt damages to vegetation and soil, it will first require to infer the impact of CMA on vegetation and soil. Then compare the results with the impact of road salt on vegetation and soil. And the difference between the both will help to determine the better option in quantified terms.

The sixteenth chapter that is in the textbook has to do with various topics that engineers would encounter in the service sector. Selected topics that are covered here include the ability for one to price the service sector, evaluate investment projects in the health care industry, and conduct cost-benefit analyses and cost-effectiveness analyses. For the short case study that we have on hand here, it is shown that a major city in Florida has been experiencing rapid growth and has resulted in a major traffic nightmare. The county and area don't have a lot of money for additional road improvements and the gasoline tax is insufficient for the cause at hand. It was recommended to increase the gas tax by one additional penny which would generate $2,600,000.00 in additional revenue and lead to a bond issue of $24,000,000.00. Presented in a lengthy table within the text are 16 different projects that are available for one to choose from in terms of priority. Four (4) districts are represented here and the first one is the highest priority followed by the others. Construction costs, operating and maintenance costs, and benefits are presented. Given this information, a 20-year planning horizon, and interest rate of 10.00%, which projects should be considered if each district gets $6,000,000.00 or various funding levels mentioned due to the influx of traffic in some areas versus others Prior to getting to the two (2) questions available, one should create a chart which has the net present worth of the 16 requested projects and their initial investment amounts. This is shown below for one to see: img Now that we have this monster in place, the next thing that one would need to do is to answer the two (2) questions that are provided to one here below. a) The first question that one would need to answer here has to do with choosing which projects would be suitable for the cause when $6,000,000.00 in funding is provided for each district. Note that priority should be given to the projects that have the highest net present worth outside of the standard funding amounts. Shown below in the applicable table are the choices that made the cut and the combined present worth totals: img b) The second part of the case study here gets a bit trickier because the first and second district gets a bigger share of money ($15,000,000.00) while the other two (2) districts get a little bit smaller piece of the pie ($9,000,000.00). Given this situation, which options would carry through Though the first part of the problem here was a bit harder to do, the second part is much in the same but can also be just as difficult because each district has more projects which have to be chosen from. Since the government can't exceed the $24,000,000.00 price tag, shown below is the net result of the analysis with the applicable options: img Thus, a total of 10 projects would be accepted under the conditions set forth here.

The sixteenth chapter that is in the textbook has to do with various topics that engineers would encounter in the service sector. Selected topics that are covered here include the ability for one to price the service sector, evaluate investment projects in the health care industry, and conduct cost-benefit analyses and cost-effectiveness analyses. For the problem that is provided to one here, we have a public school system in Ohio which is considering the option of a four (4) day school week in their high schools. Positives and costs are mentioned in the text with respect with the proposal in mind. Given the information in the book, what are the user's benefits and disbenefits Next, what are some of the items that should be considered for the sponsor's costs Finally, what are other benefits or costs associated that are not provided here (a) The first part of the problem that one would need to answer here is to determine the user's benefits and the sponsor's costs if the project was implemented. Note that the users here are students and parents of the targeted population. Shown below to begin here are the user's benefits that may apply to this situation: Students will be able to be more socially active since they have an extra day off to do as they wish with their friends and the like. The ability to rest up and recover if they are feeling ill will help reduce the absence rate that are common in the middle part of the week (or second half). One of the biggest benefits for the students to be able to work a full day on the day off of school which can lead to income they could spend in the general economy elsewhere. Finally, one other benefit is that it would give students and parents time to be able to take care of life's necessities that would otherwise have to wait until the weekend. While there are a number of benefits present here, there are just as many disbenefits. Shown below are some of those present here: The day that is chosen (Wednesday) is an odd day because this would cause disruption in the learning process for most students because there is a day off in the middle of the week which would cause them to lose focus in the second half of the week. One major disbenefit for students that are economically challenged is the inability to get free or reduced meals during that day which they may depend on for their nutritional requirements. Thirdly, the ability to get help they need at the school would be cut off because it is not available on the day off. The community centers may become overcrowded and not be able to serve the populations they may get otherwise. Finally, working parents would have a tough time to maintain a schedule which has a day off squeezed in the middle of an otherwise normal workweek. This applies to all parents and not to any group in particular. b) The second part of the problem that one would need to do is to explaining what items would be included in the sponsor's costs. Note that the sponsor here is the Ohio Department of Education, the local school and county districts that may initiate the plan as a pilot or permanent change. Though there are no wrong answers here, some of the costs that can be derived from the text include the following: The reduction in funding that would be provided by the federal government that would be allocated to high schools that implement the plan in place. Reductions in federal aid for free or reduced lunches that would be served (which wouldn't be in this case). Finally, the amount of general expenses applied to the school (i.e. fuel costs, salaries, utilities, and the like) would be reduced because those could be turned off or not used as of a result. c) The final part of the problem asks one to come up with other benefits or costs that could be applicable here. While there is no right answer here, some of the benefits and costs that could be said here include the following: Benefits Increased tax revenues because students are more apt to spend more money which will result in additional tax dollars for the local and state economies. Students will feel better overall because the amount of stress on them to go to school five (5) days a week is now down to four (4) days a week. Finally, the reduction in absences could reduce the amount of policing costs that could result from truancy problems because students missing school on that particular day frequently. Costs The biggest downside here not mentioned are possible increases in policing costs because troublemakers would still be able to have free rein in the city and could cause unnecessary repercussions for the cities this is implemented in. On another angle, the amount of unemployment costs would rise because there are more students fighting for the few jobs that are available to be had. Though, this is hard to determine since it is only one day that is eliminated in the week.

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