A local council has a total budget of £(1{,}200{,}000) to fund three development projects: Project A, Project B and Project C. The minimum funding required for each project is £(300{,}000) for A, £(200{,}000) for B and £(150{,}000) for C. The benefit‑cost ratio (BCR) per £(1{,}000) invested is 1.8 for A, 2.1 for B and 1.5 for C. Any additional funding beyond the minimum can be allocated to any project and yields the same BCR for that project.

Determine the allocation of the £(1{,}200{,}000) that maximises the total benefit, and state the maximum total benefit (in benefit‑units, where 1 unit = £(1{,}000) of benefit).

Question

A local council has a total budget of £(1{,}200{,}000) to fund three development projects: Project A, Project B and Project C. The minimum funding required for each project is £(300{,}000) for A, £(200{,}000) for B and £(150{,}000) for C. The benefit‑cost ratio (BCR) per £(1{,}000) invested is 1.8 for A, 2.1 for B and 1.5 for C. Any additional funding beyond the minimum can be allocated to any project and yields the same BCR for that project.

Determine the allocation of the £(1{,}200{,}000) that maximises the total benefit, and state the maximum total benefit (in benefit‑units, where 1 unit = £(1{,}000) of benefit).

Accepted Answer

Allocate £300,000 to Project A, £750,000 to Project B and £150,000 to Project C; maximum total benefit = 2,340 benefit‑units.

Gce Model Questions Vol1 2024 Government Question 48

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