A City Is Deliberating Whether to Undertake a Major Infrastructure

question 3

Essay

A city is deliberating whether to undertake a major infrastructure investment to provide free, high-speed WIFI internet access within its city limits. Alternatively, the city could rely on the private sector to provide access. The city estimates internet demand to be P = 20 - 5Q, where Q denotes number of users (in millions) and P is price per month in dollars. The emerging private market for internet access is considered to be highly competitive, and the typical provider exhibits LAC = LMC = $5 per subscriber per month, where LAC is long-run average cost and LMC is long-run marginal cost. According to the city's estimates, the initial cost for constructing the high-speed network is $600 million and network maintenance costs are $80 million per year. Prepare a benefit-cost analysis to guide the city's decision. Assume that the public and private alternatives will last indefinitely, and that each will be held to a 5% discount rate.

---

Definitions:

Explicit And Implicit Coercion

Direct and indirect methods of compelling someone to act in a particular way through force or intimidation.

Negative Consequences

Unfavorable outcomes or punishments resulting from an action or decision.

Change

The act or process through which something becomes different.

Fear Of The Unknown

Anxiety or apprehension about something that is not known or familiar.