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Chapter 3
Suggested answers
to selected questions
(2) (a) Ultraword, Easywrite and Super Quill are on the efficient frontier.
(b) Easywrite has the highest aggregate value of 82.5 (this value is
obtained after normalizing the weights).
(c) This implies that the two attributes are not mutually preferential
independent, so the additive model may not reflect your
preferences accurately.
(3) (a) Design A will offer the highest aggregate value for benefits as
long as the weight for environmental impact is below about 11.
If the weight is higher than this then Design C offers the highest
valued benefits.
(b) Designs A, C and D are on the efficient frontier.
(c) The manager is prepared to pay $4000 for each extra benefit
point (i.e. $120 000/30). A switch from Design D to A would
cost only $731.7 for each extra benefit point (i.e. $30 000/41) and
would therefore be worth making. However, a switch from A
to C would cost $4705.8 per extra benefit point (i.e. $80 000/17)
and would therefore not be worth making. Therefore choose
Design A.
(4) (a) Rail/ferry has the highest value for aggregate benefits, i.e. 81.
(b) Rail/ferry and road/ferry lie on the efficient frontier.
(c) The manager is prepared to pay $1167 for each extra benefit
point (i.e. $70 000/60). A switch from road/ferry to rail/ferry
would cost $567 for each extra benefit point (i.e. $30 000/53) and
is therefore worth making. Therefore choose rail/ferry.
(5) (c) Values: Inston, 56; Jones Wood, 66; Peterton, 36.8; Red Beach,
46.4; Treehome Valley, 43.6.
(d) Jones Wood and Red Beach lie on the efficient frontier.