Transport Committee Funding Decision
The transport committee of a city of 240,000 has 300 million CZK in capital funding for the next 24 months. It is comparing three proposals. Proposal A extends tram line 4 to the northern district: capital cost 420 million CZK, of which a 120 million CZK national grant is still unconfirmed; projected 18,000 additional daily trips by year three. Proposal B creates a bus rapid transit corridor in the east: capital cost 150 million CZK and additional operating cost of 25 million CZK per year; projected 11,000 additional daily trips by year two. Proposal C cuts all fares by 20%: 90 million CZK per year in lost revenue; models predict a 4% ridership increase, about 9,000 trips per day, but the estimate is uncertain. Councillor Novák argues: 'BRT is clearly the best value because its capital cost per new daily trip is the lowest.' The committee must choose at most one capital project and may also consider the fare cut if funds allow.
1. Evaluate Councillor Novák's claim that BRT has the lowest capital cost per new daily trip. Does the comparison support choosing BRT?
Read the worked answer
Councillor Novák compares 150M/11,000 ≈ 13,600 CZK per daily trip for BRT with 420M/18,000 ≈ 23,300 for the tram and 90M/9,000 = 10,000 for the fare cut. That arithmetic alone is misleading for three reasons. First, the fare cut is an annual cost, while the capital projects are one-off; over five years the fare cut costs 450M, not 90M. Second, BRT has a recurring 25M/year operating cost, so a five-year comparison is 150M + 125M = 275M, or 25,000 CZK per daily trip. Third, the tram figure depends on a 120M grant; without it the city cannot fund the tram from the 300M budget at all. The claim may still point to BRT as reasonable, but the stated comparison does not establish 'best value' because the time horizons and cost categories are not normalised.
2. What single piece of missing information most changes the feasibility of Proposal A, and why?
Read the worked answer
The decisive unknown is whether the 120M CZK national grant is confirmed. The city has 300M CZK; Proposal A costs 420M. If the grant is not confirmed, A is infeasible regardless of its projected ridership, because the funding gap is 120M and the budget cannot cover it. Other unknowns matter - tram operating costs, the reliability of the 18,000-trip forecast, and whether the 24-month deadline is achievable - but they change the ranking rather than the feasibility. A secondary decisive fact would be whether the city may borrow or phase the project; the setup says capital funding for 24 months, so without borrowing the grant is the binding constraint.
3. Identify one assumption behind the 4% ridership estimate and explain how it could make Proposal C look better than it is.
Read the worked answer
One assumption is that a 20% fare cut produces a fixed 4% increase in ridership - that is, a constant price elasticity of about -0.2. If the true elasticity is lower, the city forgoes 90M per year for fewer than 9,000 new trips. The estimate may also count 'trips' rather than unique riders, and it may ignore that existing passengers receive the discount too: the lost revenue is calculated on all riders, while only the marginal new trips are the benefit. It also assumes no change in service quality or congestion. If the model ignores peak-hour capacity, the apparent benefit could be overstated because new riders may crowd out existing ones.