1 fin650: project appraisal lecture 9 economic appraisal of projects
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Fin650: Project Appraisal
Lecture 9
Economic Appraisal of Projects
• Analyzing economic costs and benefits in an existing market
• Evaluation of costs and benefits in distorted markets
• Direct estimation of demand curve• Extrapolation and econometric estimation
Lecture 9
Analyzing Economic Costs and Benefits in an Existing Market
Price in Rand/Unit Price in Rand/Unit
Units of Output Units of Output
Pmax Pmax
Pm
0 Qm
C Pm
Qm 0
C
Demand
Supply
E
(a) Total Economic Benefit (b) Total Economic Cost
Units of Output
Price in Rand/Unit
Pmax
Pm C
0 Qm
Demand
Supply
E
(c) Total Economic Benefits and Costs
Producer surplus
Consumer surplus
The gross economic benefits from the consumption of the output from this industry are greater than the financial revenues received by the suppliers due to the consumer surplus enjoyed by the consumers of the output.
Economic cost of producing the output is less than the financial revenues received by the suppliers due to the producer surplus enjoyed by the suppliers.
The implication of these two facts is that the financial price of a unit may be different from its economic price even in the absence of distortions.
Analyzing Economic Costs and Benefits in an Existing Market
Valuing Project outputs Will depend on the nature of the market in which the
output is traded.
Elastic demand, or a small project Use market price Quantity supplied by the project *market price
Perfectly inelastic supply Use average of before and after project prices, area
under the demand curve in the range of change in project output.
How to find price after the project?
Analyzing the Economic Benefits of an Output Produced by a Project
Analyzing the Economic Benefits of an Output Produced by a Project
Economic Benefits of a New Project in an Undistorted Market:Upward sloping supply (a large project)
Analyzing the Economic Benefits of an Output Produced by a Project
Analyzing the Economic Benefit of an Output (subject to tax) Supplied by a Large Project
• If the quantity demanded by the project is relatively
small compared to the size of the market then there
will only be a very small change in the market price.
• In such a situation and given that we are operating in
an undistorted market, the gross financial cost to the
project will be equal to the gross economic cost.
• A difference only arises when the change in the
quantity demanded by the project is sufficiently large
to have a large impact on the prevailing market price.
Analyzing the Economic Cost of an Input Demanded by a Project (Cont’d)
)(*2
'21 qqPP
)(*2
'2 qqPPres
Analyzing the Economic Cost of an Input Demanded by a Project (Cont’d)
If the quantity demanded by the project is large compared to the size of the market then there will only be a change in the market price.
Government purchasing land
◦ Purchase price, P2*(q-q1)
◦ Economic costs Land taken through eminent domain
◦ Economic costs
Economic Cost of an Input Demanded by a Project in an Undistorted Market: Inelastic supply
Analyzing the Economic Cost of an Input Demanded by a Project
Economic Cost of an Input Demanded by a Project in an Undistorted Market: Upward sloping supply curve and a large Project
Analyzing the Economic Cost of an Input Demanded by a Project
Large project subject to purely revenue generating
input tax General principles:
◦ When a project reduces the quantity of input
available for other people, use the willingness to pay
(as indicated by the demand curve) as value
◦ When a project increases the quantity of input that
the market must produce, use marginal cost for the
value of the added input
◦ Tax is treated as transfer
Analyzing the Economic Cost of an Input (subject to tax) Demanded by a Project
Analyzing the Economic Cost of an Input (subject to tax) Demanded by a Project
A project uses large quantity of cements to build a bridge. Cements are subject to a Tk. 1/bag tax and 100 million bags will be used to build the bridge. As a result of the bridge, the price of cement including the tax, will rise to from Tk. 2 to Tk. 2.30 per bag and private consumers are expected to decrease their consumption by 20 million bags. What costs should be attached to this input?
Class Exercise
Analyzing the Economic Cost of an Input (subject to taxes related to externalities)
Demanded by a Project
• Distortions are defined as market imperfections. • The most common types of these distortions are in the
form of government taxes and subsidies. Others include quantitative restrictions, price controls, and monopolies.
• We need to take the type and level of distortions as given and not changed by the project when estimating the economic costs and benefits of projects.
• The task of the project analyst or economist is to select the projects that increase the net wealth of country, given the current and expected regime of distortions in the country.
Economic Evaluation of Non-Tradable Goods and Services in Distorted Markets
• If market or government failures distort the relevant product market, then project benefits are measured by the changes in social surplus resulting from the project plus net revenues generated by the project
• Monopoly
◦ As in the competitive case, the social surplus generated by the output produced and sold in the monopolist is represented graphically by the area between the demand schedule and the marginal cost curve that is to the left of the MR and MC curves
Valuation of Benefits in Distorted Markets
◦ Social surplus above the price is received by the consumers and that below the price is captured by the producer.
◦ Monopolist is a part of the society; therefore benefits accruing to them count.
◦ Breaking the monopoly will increase social surplus;
Deadweight loss would disappear. Consumers will capture a part of the
monopolists producers surplus, viewed as transfer.
Valuation of Benefits in Distorted Markets
Valuation of Benefits in Distorted Markets
Natural Monopoly Four policies
1. Allow monopoly, deadweight loss abc, monopoly profits=Pmafg.
2. Regulate monopoly, set PR = AC, eliminates monopoly profits,
transferring social surplus to persons using the road, expands output, reduces deadweight loss from area abc to area dec, society’s benefit adeb.
3. Require road authority to set Pc , eliminates deadweight loss, price is
less than AC, revenue no longer cover costs, subsidy would be required.
4. Free access, marginal costs exceed willingness to pay, deadweight
loss chQo, no toll revenue, entire construction and operation costs
have to be subsidized.
Valuation of benefits in Distorted Markets
Information Asymmetry Externalities
Negative Externality
Too low price, too much output, deadweight loss Impose tax t Social accounting ledger
Positive Externality
Too high price, too little output Provide subsidy v Social accounting ledger
Public goods Little or none will be produced, willingness to pay, optimal level of
output of public goods
Valuation of Benefits in Distorted Markets
Valuation of benefits in Distorted Markets
Valuation of benefits in Distorted Markets
Purchase at below opportunity costs e.g. witnesses, commuting costs, lost labor
Hiring unemployed labor Five alternative measures of social cost of hiring unemployed labor
Zero opportunity costs, other productive work, value of leisure,
value of time: Pe, Pc,Pd, Pd, Pr. Opportunity cost should be non-zero
Budgetary expenditure, workers were willing to work for less, subtract producers surplus, transfer to the workers
Area cdLdLt
½(Pm+Pr)(L’)
½(Pm)(L’), assumes Pr to be zero
Purchases from a monopolist
Measuring Costs in Inefficient Markets
Measuring Costs in Inefficient Markets
The general rule In factor markets in which supply is taxed, direct expenditure
outlays overestimate opportunity cost In factor markets in which supply is subsidized, direct
expenditure outlays underestimate opportunity cost In factor markets exhibiting positive externalities of supply,
expenditures overestimate opportunity costs In factor markets exhibiting negative externalities of supply,
expenditures underestimate opportunity costs
Opportunity cost equals direct expenditure in the factor
market minus (plus) gains (losses) in social surplus
Occurring in the factor market
Measuring Costs in Inefficient Markets
Trade effects of outputs◦ Extra export
◦ Less imports
◦ A combination of the two
Trade effects of inputs◦ More imports
◦ Less exports
◦ A combination of the two
Economic benefit of exported/importable output Economic cost of imported/exportable input
Benefits and Cost of Traded Goods and Services
Economic Prices of Traded Goods and Services
Economic Prices of Traded Goods and Services
In project analysis we estimate change in
social surplus to value impact of the
program/project ◦ Need to know the shapes of the supply and demand
curves
There are well functioning competitive
markets, know only one point on the
demand and supply curves, represented
by the equilibrium
Valuing Impacts from Observed Behavior
Goods that are rarely traded in
markets-health and safety, pollutions,
access to scenic areas
Commodities that are traded in
imperfect markets, monopoly,
asymmetric information, and
externalities
Valuing Impacts from Observed Behavior
• Estimating benefits and cost based on demonstration or pilot programs.• Alternative evaluation designs:– Classical experimental design with or without baseline data
– Simple before and after comparison
– Non-experimental comparison with or without baseline data
• Limited applications:– Employment and training programs, people oriented service
– A new dam, on a small scale, pilot basis cannot be done
• Advantages:– A bad idea can be abandoned
– Needed adjustment in the program may be made
• Disadvantages:– May not readily translate into a large-scale program
– Uncertainty concerning external validity
Demonstrations
Three possibilities Knowing one point on the demand curve and
its slope or elasticity. Extrapolating from a few points, know a few
points on the demand curve that can be used to predict another point of relevance to policy evaluation.
Econometric estimation with many observations, have a sufficient number different observations of prices and quantities.
Direct Estimation of Demand Curves
• Current refuse disposal is 2.6lbs per person per day and disposed off in containers of 20lbs
• Currently there is no charge on refuse collection• Marginal social cost (collection + landfill costs) =
0.6/lb• In new Delhi for each Rupee increase in price of
refuse collection reduces wastes by 0.4 lb/p/d• Assume a linear demand curve• Evaluate impact of imposition of a fee of 0.05/lb, i.e.
Tk. 1 for each container of 20lbs, MPC is less than MSC
Class Exercise I
pq 10 Linear demand curve
Slope or elasticity estimates from previous research
Assuming α0 = 2.60, α1= - 0.4 Estimating social surplus gain from charging
for refuse disposal ◦ A graphical illustration
Using a Slope Estimate
Social Surplus Gain from Refuse Fee
• We have an estimate of price elasticity of demand from previous research◦ εd = α1 p/q
◦ α1 = εd q/p
◦ εd=-0.12
◦ p = 0.81, and q = 2.62, α1 = -0.40
• Construction of a linear demand curve to measure changes in social surplus requires either a direct estimate of the slope itself or an estimate of the price elasticity of demand and the price and quantity at which the elasticity was estimated.
Using an Elasticity Estimate
Effect of a fare increase on bus ridership◦ If the past fare increase of Tk. 1 resulted in 1000 fewer riders ,
then it may be reasonable to assume that a further increase of Tk.1 will have the same effect
◦ Assumed functional relationship between the outcome and the policy variable Linear functional forms can produce very different predictions
than constant-elasticity functional forms Further we extrapolate from past experience, the more sensitive
are our predictions to assumptions about functional form Econometric estimation with many observations
◦ If many observations of quantities demanded at different prices are available, then it may be possible to use econometric techniques to estimate demand schedule
Extrapolation and Econometric Estimation
• Government supply many goods that are also provided by the private sector, e.g. education
• Using price and quantity of an analogous private sector good to estimate the demand curve for a publicly provided good
• The market price of a comparable good in the private sector is an appropriate shadow price for a publicly provided good, if it equals the average amount that users of the publicly provided good will be willing to pay
– Private and public goods must be comparable in quality of service and other important characteristics
– Limitations:• Using private sector revenues would underestimate benefits, because it
omits consumer surplus
Market analogy method
• Using the market analogy method to value time saved
– Bridge, highway improvement saves time
–Wage rate
– Limitations of wage rate
• Benefits, should be added to wages
• People work during travel
• Truck drivers work, to be counted,
wage + benefit
• Taxes, After tax wage rate plus benefit
• Pleasure travel
• Dirty, dangerous jobs, unemployed
Market analogy method
Using Airbags in car would increase
probability of survival in a accident from p
to p + w.
Additional cost of an airbag is Tk.1,000
W=1/1000
Calculate value of life.
Class Exercise II
One type of construction job has a 1/1000 greater chance of a fatal injury in a year than another type of construction job.
Suppose riskier job pays a salary that is Tk. 2000 higher than the safer job
Calculate value of life.
Class Exercise III
Using the market analogy method to value life saved◦ Foregone earnings method
Value of life saved equals the present value of future earnings◦ Consumer purchase studies
(p+w)V(Life) –Tk. 1000 = pV(life)
(p+w)V(Life) - pV(life) = Tk. 1000
wV(life) = Tk. 1000
V(life) = Tk. 1000 /w, w =1/10,000
V(life) = Tk. 1000 /(1/10,000)
= Tk. 10,000,000◦ Labor market studies
(1/1000) V(life) = Tk. 2000
V(life) = Tk. 2 million
Market analogy method
• Shadow prices• Project analysis in developing countries• LMST accounting price method in practice• Intermediate goods and asset valuation
method• Travel cost method• Social discount rate
Lecture 10
• When a market does not exist or market failure
leads to a divergence between market price and
marginal social cost, analysts try to obtain
estimates of what market price would be if the
relevant good were traded in a perfect market.
Such an estimate is called a shadow price
• Estimates of shadow prices when markets are
missing– Examples: value of a unit of time, statistical life, or the
(negative) value of a particular type of crime
Shadow Prices
Shadow Prices
Shadow Prices
Plug-Ins for Value of Travel Time Saved
Shadow Prices
Plug-Ins for Value of Recreational Activities (in 1999 U.S. dollars)
Shadow Prices
Plug-Ins for Value of Environmental Impact (in 1999 U.S. dollars)
Shadow Prices
Project Analysis in developing countries have much in common with Project Analysis in industrialized countries
The main distinguishing characteristic of Project Analysis in developing countries is the much grater emphasis on adjusting the market prices of project output and inputs so that they more accurately reflect their value to society◦ Markets are more distorted in developing countries
Segmented labor market Overvalued exchange rate Tariffs, taxes, and import controls Formal and informal credit markets
◦ Use shadow prices/accounting prices instead of market prices
Project Analysis in Developing Countries
Developed by UNIDO, I.M.D Little and J.A. Mirrlees, synthesized by Lynn Squire and Herman G. van der Tak
The LMST methodology◦ Use world prices as shadow price for all project inputs
and outputs that are classified as tradable◦ World prices are less distorted than domestic prices
Imported input valued at import price, CIF Exported output valued at export price, FOB
Examples◦ Steel plant◦ Agricultural crop
LMST Accounting Price Method
• Shadow pricing involves multiplying each market price by an accounting price ratio – APR for good i = accounting/shadow price of good i
/market price of good i– Shadow price of good i = APR of good i *market price
of good i– Small country assumption
• Shadow price of an imported input or an output that is an import substitute
• Shadow price of an export• Shadow price of a non-tradable good (electricity)
LMST Method in Practice
• CIF price * Exchange rate = World Price in domestic currency– Use shadow exchange rate, if there is a big
difference between official and market exchange rates
• Accounting prices– CIF price: APR = 1– Tariff : APR = 0– Transport cost: APR = 0.5–Distribution cost: APR = 0.8–Weighted APR: 0.85
• Shadow price= Market Price*APR
Accounting Price of an Import
Item Dollar Price
Market Price(Tk)
APR Accounting Price
CIF Price 40 2800 1.00 2800
Tariff - 350 0.00 -
Transport - 280 0.50 140
Distribution - 175 0.80 140
Total 3605 0.85 3080
Accounting Price of an Imported Good
• FOB Price• Export tax is a transfer between foreign
purchaser (no standing) and the government: APR= 1
• Transport for export: APR= 0.5• Factory gate price: APR=1• Shadow price = 5180*1+70*0.5+1750*1=Tk. 6965
Accounting Price of an Export
Item Dollar Price
Market Price(Tk)
APR Accounting Price
FOB Price 100 7000 - -
Export tax 25 1750 1.0 1750
Transport 1 70 0.5 35
FactoryGate
74 5180 1.0 5180
Transport(d) - 120 0.5 60
Distribution(d) - 300 0.8 240
Accounting Price for Export
• LMST involves determining the equivalent value of non-tradables in world prices
• Breaking down the cost of inputs into traded, non-traded and labor components
• Multiply market price by applicable accounting price ratio– CIF prices: APR =1–Domestic transfer (tariffs and taxes): APR = 0– Labor: APR = 0.6– Standard conversion factor: 0.80
Accounting Price of Non-tradable
Accounting Price for Electricity Valued or Marginal Cost of Supply (in thousands of pesos)
Semi-input-output analysis Consumption conversion factors
Weighted average of accounting price ratios for a
nationally representative market basket of goods
Standard conversion factors
SCF = (M+X)/[(M+ Tm –Sm)+(X-Tx+Sx)]
Where M= Total value of imports(CIF)
X = Total value of exports(FOB)
Tm = Total tariff on imports
Tx = Total taxes on exports
Sm = Total subsidies on imports
Sx = Total subsidies on exports
Average value of SCF for different countries 0.8
(ranges between 0.59-0.96)
Conversion factors
Constant marginal costs up to capacity level, up to Q1 and then completely
inelastic Whether the fixed supply is binding or not If not binding (demand with the project within the elastic range), no change
in market price. Would not affect the current consumers of electricity◦ Would require additional input to produce additional electricity, use
shadow cost method for non-tradables If binding, (demand with the project is in the inelastic range), market price
will increase. Current consumers lose surplus and producers gain surplus Measured in market prices, the cost of electricity would equal [(P1+P2)/2]
(Q1-Q2) To convert into shadow price equivalent, multiply the cost by the
consumption conversion factor( weighted average of accounting price ratios for a nationally representative market basket of goods).
Shadow Pricing when Goods are in Fixed Supply
Shadow Pricing when Electricity is Completely Elastic and Inelastic
Location of the project Source of labor Accounting price ratio of type j labor = Shadow
price of type j labor/ the market wage for type j labor
Shadow price of foreign workers◦ SWf = [h + (1-h)(CCF)](PW)
◦ Where PW is the project wage, h is the fraction of PW sent or taken home, and 1-h is the fraction spent domestically
Rural market wage◦ RMW = 0.5($50) + 0.25($10) + 0.25($.15) = Tk. 31.25
The Shadow Price of Labor
• How much current consumption society is willing to give up now in order to obtain a given increase in future Consumption?
• It is generally accepted that society’s choices, including the choice of weights be based on individuals’ choices
• Three unresolved issues– Whether market interest rates can be used to represent how individuals
weigh future consumption relative to present consumption?
– Whether to include unborn future generation in addition to individuals alive today?
– Whether society attaches the same value to a unit of investment as to a unit of consumption
• Different assumptions will lead to choice of different discount rate
The Social Discount Rate: Main Issues
Generally a low discount rate favors projects with
highest total benefits, irrespective of when they
occur, e.g. project C Increasing the discount rate applies smaller
weights to benefits or (costs) that occur further in
the future and, therefore, weakens the case for
projects with benefit that are back-end loaded
(such as project C), strengthens the case for
projects with benefit that are front-end loaded
(such as project B).
Does the Choice of Discount Rate Matter?
Year Project A Project B Project C
0 -80,000 -80,000 -80,000
1 25,000 80,000 0
2 25,000 10,000 0
3 25,000 10,000 0
4 25,000 10,000 0
5 25,000 10,000 140,000
Total benefits 45,000 40,000 60,000
NPV (i=2%) 37,838 35,762 46,802
NPV (i=10%) 14,770 21,544 6,929
NPV for Three Alternative Projects
Appropriate Social Discount Rate in Perfect Markets
● As individuals, we prefer to consume immediate benefits to ones occurring in the future (marginal rate of time preference)
● We also face an opportunity cost of forgone interest when we spend money today rather than invest them for future use (marginal rate of return on private investment)
● In a perfectly competitive market:
rate of return on private investment = the market interest rates = marginal rate of time preference (MRTP)
● The rate at which an individual makes marginal trade-offs is called an individuals MRTP
Therefore, we may use the market interest rate as the social
discount rate
Equality of MRTP and Market Interest Rate
Alternative Social Discount Rate in Imperfect Markets
•Six potential discounting methods– Social discount rate equal to marginal rate of return on
private investment, rz
– Social discount rate equal to marginal rate of time preference, pz
– Social discount rate equal to weighted average of pz, rz
and i , where i is the government’s real long-term borrowing rate
– Social discount rate is the shadow price of capital– A discount rate that declines over the time horizon of
the project– A discount rate SG, based on the growth in real per
capita consumption
Alternative Social Discount Rate in Imperfect Markets
Using the marginal rate of return on private investment◦ The government takes resources out of the private sector◦ Society must receive a higher rate of return compared to the
return in the private sectorCriticism
◦ Too high Return on private sector investment incorporates a risk premium
◦ Government project might be financed by taxes, displaces consumption rather than investment
◦ Project may be financed by low cost foreign loans◦ Private sector return may be high because of monopoly or
negative externalities◦ Government investment sometimes raises the private return
on capital
Alternative Social Discount Rate in Imperfect Markets
Using the marginal social rate of time preference, pz
◦ Numerical values of pz
Real after-tax return on savings, around 2 percent for the US economyCriticisms
◦ Individuals have different MRTP◦ How to aggregate such individual MRTP◦ Market interest rate reflects MRTP of individuals currently alive
Using the weighted social opportunity cost of capitalWSOC= arz + bi + (1-a-b)pz
◦ Numerical Value, 3 percent for the US economy
Social discount rate should be obtained by weighting rz and pz
by the relative size of the relative contributions that
investment and consumption would make toward funding the
project
s = arz + (1-a)pz,
where a = ΔI/(ΔI+ ΔC) and (1-a) = ΔC/(ΔI+ ΔC) Savings are not very responsive to changes in the interest
rate, ΔC is close to zero The value of the parameter a is close to one
The marginal rate of return on private investment rz is a good
approximation of true social discount rate
Harberger’s Social Discount Rate
Alternative Social Discount Rate in Imperfect Markets
Criticisms of WSOCCriticisms applicable to use of rz and pz appliesDifferent discount rates for different projects based on source
of financingUse the shadow price of capital
Strong theoretical appealDiscounting be done in four steps
Costs and benefits in each period are divided into those that directly affect consumption and those affect investment
Flows into and out of investment are multiplied by the shadow price of capital θ, to convert them into consumption equivalents
Changes in consumption are added to changes in consumption equivalents
Discounting the resultant flow by pz
)1(r
)1)((r
z
z
ffp
f
z
Alternative Social Discount Rate in Imperfect Markets
• Shadow price of capital
Where rz is the net return on capital after depreciation, δ is the depreciation rate of capital, f is the fraction of gross return that is reinvested, and pz is the marginal social rate of time preference
– Numerical values for the θ,SPC, 1.5-2.5 for the US economy
– Applying SPC in practice• Criticism of calculation and use of the SPC
Alternative Social Discount Rate in Imperfect Markets
Using time-declining discount rates Conclusion, social discounting in imperfect markets
◦ If all costs and benefits are measured as increments to consumption, use MSRTP, pz, Boardman et. Al. suggests a value of
2 percent, sensitivity 0-4 percent◦ If all costs and benefits are measured as increments to private
sector investment, use MRROI, rz, Boardman et. Al. suggests a
value of 8 percent, sensitivity 6-10 percent◦ If all costs and benefits are measured as increments to both
consumption and private sector investment, use SPOC, θ, to
increments in investment and then discount at MSRTP, Boardman et. Al. suggests for SPOC, a value of 1.65 percent, sensitivity 1.3-2.7 percent; and ΔI = 15 percent and, ΔC= 85 percent, in the absence of information
The Social Discount Rate in Practice
Many government agencies do not discount at all
Shadow price of capital is rarely used
Governments do not use time-varying discount rates
Constant positive rate that varies from country to country
◦ US, 7-10 percent
◦ Canada, 10 percent, sensitivity 5-15 percent
◦ 0-3 percent for Health and Environment Projects
ADB, EIRR of 10-12 percent
Analyzing the Economic Benefits of an Output Produced by a Project
Analyzing the Economic Cost of an Input Demanded by a Project
Economic Cost of an Input Demanded by a Project in an Undistorted Market: Elastic supply, large market or a small
project
Valuation of benefits in Distorted Markets
Intermediate good method◦ If the output from a project is to be used as an input into the
production of some other good, then the effects on profits of the other, downstream industry can be included as a benefit, e.g. irrigation, education and training, value added Excludes consumer surplus Double counting, demand curve for water, benefits to farmer
Asset valuation method◦ Increase or decrease in the property value following
implementation of a project, e.g. location of jail, park Ex post CBA Assumes other factors remaining the same Not applicable in case of mobile assets
Intermediate Good and Asset Valuation Method
• Used in valuing recreational sites• Steps in travel cost method– Visitors from different origins bear different travel costs depending
on their proximity to the site– The resulting differences in total cost, and the differences in the
rates of visit that they induce provide a basis for estimating demand curve for the site
– Select a random sample of households within the market area of the site
– Survey the households to determine their number of visits to the site over some period of time, all of their costs involved in visiting the site, the cost of visiting substitute sites, their incomes, and their other characteristics
– Specify a functional form for the demand schedule and estimate it using the survey data
Travel Cost Method
Zone
Travel Time
(hours)
Travel Distanc
e(km)
Actual total cost per
person(Tk.)
Average
number of Visits
per Person
Consumers
Surplus per
Person
Consumers
Surplus per Zone
(Tk. thousands
)
Trips per Zone
(thousands)
A 0.5 2 20 15 525 5,250 150
B 1.0 30 30 13 390 3,900 130
C 2.0 90 65 6 75 1,500 120
D 3.0 140 80 3 15 150 30
E 3.5 150 90 1 0 0 10
Total 10,800 440
Illustration of the Travel Cost Method
Travel Cost Method