Answer
a) 4 dollars per crossing. This is not an efficient level of output as the company would still lose 400,000 dollars at this level of output.
b) No, the company should not build the bridge.
c) 0
d) Yes
Work Step by Step
a) Please see the table. At 4 dollars per crossing, the company would receive 1,600,000 dollars in revenue and still incur 2,000,000 in costs.
b) Since the company would not build the bridge, there would be no loss.
c) If the government builds the bridge, then the price would have to be set equal to the marginal cost. However, there is no marginal cost for the bridge, so the price should be zero.
d) The bridge would increase the surplus for society.
$1/2*8*800,000$
$4*800,000$
$3,200,000$
The societal surplus would be 3,200,000 dollars.
