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Suppose that the world price of T-shirts is AUD$20 each and Australia has a 30% ad valorem import duty on T-shirts (i. the import duty is 30% of the…

Suppose that the world price of T-shirts is AUD$20 each and Australia has a 30% ad valorem import duty on T-shirts (i.e. the import duty is 30% of the world price). A proposed project would replace 100,000 T-shirts currently imported annually by domestically produced T-shirts. The annual cost of the project (operating cost plus annual equivalent capital cost) at market prices is $1.0 million and at efficiency prices is $0.8 million. Calculate the annual benefit of the project, net of annual operating and capital costs, according to:

a. Project or Market analysis

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b. Efficiency analysis 

 

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