Unformatted text preview: lts of your analysis. Include correctly labeled diagrams, if useful or required, in explaining
your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional
changes. Use a pen with black or dark blue ink. 1. The diagram above shows the cost and revenue curves for a bridge to a popular island. The marginal cost of
crossing the bridge is zero and is indicated in the diagram as the horizontal axis. The price is the toll to cross
the bridge, and the output is the number of autos that cross the bridge each day.
(a) Assume that a private firm owns the bridge and maximizes profits. Based on the diagram, determine each
of the following.
(b) Now assume that a municipality owns the bridge and sets the price to achieve allocative efficiency.
Based on the diagram, determine each of the following.
(c) At a price of $1, is the municipality’s accounting profit positive, negative, or zero? Explain.
(d) Suppose that the municipality sets a break-even price that generates revenues to just co...
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This note was uploaded on 02/03/2014 for the course ECONOMIC 112 taught by Professor Van le during the Winter '12 term at American Internation College.
- Winter '12
- van le