# Project #31759 - Economics

A city must decide whether to build a downtown parking garage with a capacity of 750 cars. They also must decide what rate to charge for parking.  It is considering two rates: a flat \$1.50 per hour rate or an all-day rate of \$1 per hour (based on a \$10 daily rate and an average 10-hour stay).  Parking demand is estimated at Q = 900 – 300P, where Q is the number of cars in the garage each hour and P is the hourly rate.  The capital cost of the garage is estimated to be \$20 million and the annual operating expense is estimated at \$0.62 million over its estimated 40 year life.  The city’s discount rate is 8%.  At 8%, \$1 per year for 40 years has a present value of \$11.90. (Use the factor of 11.9 to multiply yearly net benefits to obtain a present value.)   For this analysis, use 260 working days per year.

a.    Should the city build the facility?  If so, which of the two hourly rates should it charge?

b.    Could a private developer profitably build and operate the garage? Which of the two rates should it set, assuming a private firm would face the same demand, costs, and discount rate as the city?

 Subject Business Due By (Pacific Time) 05/28/2014 12:00 am
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