Highway engineers want to improve a dangerous stretch of highway. They expect that it will reduce the risk of someone dying in an accident from 5.3 percent to 2.1 percent over the life of the highway. If a human life is worth $10 million, then the project is worth doing as long as it does not cost more than:

Question

Caden Macdonald

Business

12 October, 07:50

Highway engineers want to improve a dangerous stretch of highway. They expect that it will reduce the risk of someone dying in an accident from 5.3 percent to 2.1 percent over the life of the highway. If a human life is worth $10 million, then the project is worth doing as long as it does not cost more than:

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Reynaldo Kirby · Answer 1

Not more than $320,000

Explanation:

Using cost benefit analysis, the benefit of undertaking a project must be greater than the cost incurred. It is a way of analysing different plans of action and choosing the one that gives greater benefit ate least cost.

The highway engineers want to improves a dangerous stretch of road reducing risk to lives from 5.3 to 2.1 percent.

Risk before project = 0.053 * $10,000,000

Risk before project = $530,000

Risk after the project = 0.021 * 10,000,000

Risk after the project = $210,000

Therefore benefit of the road = 530,000-210,000 = $320,000

It will reduce risk to human lives by $320,000. So the project cost must not be more than $320,000.