In: Statistics and Probability
Benefit cost ratio suggests us the overall value of the money spent. If the Benefit cost ratio is greater than 1, this indicates the project's net present value is in profit.
In the above problem, costs involved = costs to companies + enforcement costs = $124,000,000 + $16,000,000 = $140,000,000
Benefits are indirectly the money saved when the lung diseases are avoided, hence in this case, the total money saved = number of cases * average cost of each case = 6700 * 35,000 = $234,500,000
Hence the required benefit cost ratio is as follow:
Since the ratio is grater than 1 the policy change will have net benefits if implemented.