Question

Molly must drive across a bridge over a river eight times each week. Because the bridge is narrow and traffic is congested, Molly's willingness to pay for the eighth and final weekly trip is $0.50. Now the governor has promised to refurbish this old bridge and widen it to lessen the congestion and increase traffic flow over the river. Molly will have to pay extra taxes to finance the repair, but the toll for crossing the bridge will fall, and she expects to make 10 trips instead of just 8. How would you figure out how much Molly is willing to pay in taxes for the bridge repair?

Answer 1

SOLUTION:-

* For the eight trips Molly has gained a consumer surplus of $.50 on each trip thus initially the consumer surplus rose by $4.00. However now due to convenience she only takes two additional trips at the reduced prices thus the consumer surplus increases by $.50 [ = 1/2* ($.50)(2 trips].

* As the Molly's consumer surplus rises by $1.00, it would be the most she would be willing for th payment of the additional taxes to pay for the project.

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