Problem
Bill rides the subway at a cost of 75 cents per trip but would switch if the price were any higher. His only alternative is a bus that takes five minutes longer, but costs only 50 cents. He makes 10 trips per year. The city is considering renovations of the subway system that would reduce the trip by 10 minutes, but fares would rise by 40 cents per trip to cover the costs. The fare increase and reduced travel time both take effect in one year and last forever. The interest rate is 25 percent.
The city's population consists of 55,000 middle-class people, all of whom are identical to Bill, and 5,000 poor people. Poor people are either unemployed or have jobs close to their homes, so they do not use any form of public transportation. What are the total benefits and costs of the project for the city as a whole? What is the net present value of the project?
Why should the 5000 poor people be included in the calculation or not? because the poor people do not use the services therefore shouldn't they be excluded from the costs and benefits?