Question

The Bruce Highway (from Cooroy to Curra) is currently being upgraded with construction works. The total expense of the project is 1.6 billion dollars and the federal government has contributed 1.1 billion of those dollars whilst the Queensland State Government has contributed the remaining 500 million dollars. Every Queensland resident (4.9 million residents) receives a one off benefit of 222 ($/resident) with this construction that is not directly related to road users. If the number of road users is estimated to be 1 million, what is the minimum that road users must value the upgraded highway if the project is to be efficient? Answer to the nearest whole dollar per road user (with no decimal points, spaces, $ signs, or commas in your answer).

Answer 1

Total Private cost = $1.6 billion = $1,600 million

Total external benefit for Queensland = 4.9 million x $222 = $1,087.8 million

Net private cost ($ million) = Total Private cost - Total external benefit for Queensland = 1,600 - 1,087.8 = 512.2

Minimum value estimated per user ($) = Net private cost / Number of users = 512.2 million / 1 million = 512.2 ~ 512