A company is considering building a bridge across a river. The bridge would cost

Question

A company is considering building a bridge across a river. The bridge would cost $2 million to build and nothing to mainain. The following table shows the company's anticipated demand over the lifetime of the bridge: Price (Dollars per crossing) 8 7 Quantity (Thousands of crossings) 50 100 150 200 250 300 350 400 4 2 If the company were to build the bridge, its profit-maximizing price would be$ , and it produce the efficient level of output. If the company is interested in maximizing profit, t build the bridge because profit would be 5 (Note: If the company incurs a loss, be sure to enter a negative number for profit.) If the government were to build the bridge, it should charge a price of $ True or False: The government should build the bridge. O True False

Explanation / Answer

The Bridge Total cost in building the bridge = $2 million

MC=0 because there is no Maintainance cost.

If a company were to build the bridge, the profit-maximizing price level will be $0 and efficient quantity of output will be =400 thousand of crossings.

The efficient price and quantity will be determined by the condition;

Price = MC

hence price will be $0 and corresponding to this price quantity will be 400 thousand of crossings.

If the company is interested in profit-maximising, then it would not build the bridge because Profit would be negative.

Profit = TR -TC

=P*Q - $2 million

=0*400 -$2 miilon

= - $2 million.

If the government were to make the bridge, it should charge a price of $0.

This is because the government wants to produce efficient level of output.

Yes, True

The government should make the bridge because it is the responsibility of the government to take care of people convenience and government do not want to maximise the profit.

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