weigh all benefits and costs, not solely those that accrue as revenue
or are incurred as expenses. According to this
benefit-cost criterion, the
airport may be worth building even if it fails to generate a profit for the
government authority. The optimal
means of regulating the production
decisions o f the utility depend on a careful comparison of benefits (mainly
in the from of energy conservation) and costs (in material and
environmental terms).
In practice, profit maximization and benefit - cost analysis are not
always
unambiguous guides to decision making. One difficulty is posed
by the timing of benefits and costs. Should a firm (the drug company, for
example) make an investment (sacrifice profits today) for greater profits
five or ten years from now? Are the future benefits to air travelers worth
the present capital expense of building the airport? Both private and public
investments involve trade-offs between present and future benefits and
costs. Thus, in pursuing its profit goal, the firm must establish a
comparable measure of value between present and future monetary returns.
Uncertainty poses a second difficulty. In many economics decisions,
it is
customary to treat the outcomes of various actions as certain. For
instance, a fast-food chain may know that it can construct a new outlet in
21 days at a cost of $90 per square foot. The cost and timing of
construction are not entirely certain, but the
margin of error is small
enough to have no bearing on the company’s decisions and thus can be
safely ignored. In contrast, the cost and date of completion of a nuclear
power plant are highly uncertain (due to unanticipated design changes, cost
overruns, schedule delays, and the like).
At the best, the utilities that share ownership of the plant may be able to
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