Question

Suppose you are in charge of a toll bridge that costs essentially nothing to operate. The demand for bridge crossings Q is given by P = 15 − Q/2, where P is the price of the toll and Q is the number of vehicles crossing the bridge.

(a) (2.5 points) Draw the demand curve for bridge crossings as a function of the toll price.

(b) (2.5 points) How many people would cross the bridge if there were no toll?

(c) (5 points) What is the loss of consumer surplus associated with a bridge toll of $5?

(d) (5 points) The toll-bridge operator is considering an increase in the toll to $7. At this higher price, how many people would cross the bridge? Would the toll-bridge revenue increase or decrease? What does your answer tell you about the elasticity of demand?

(e) (5 points) Find the lost consumer surplus associated with the increase in the price of the toll from $5 to $7.

Answer 1