Answer to Question #290990 in Microeconomics for garg

Question

A company is considering constructing a Flyover bridge over the busiest road to avoid the 

traffic. The bridge would cost $2 million to build. The following table shows the 

company’s anticipated demand over the lifetime of the bridge:

Price per 

Crossing ($)

No. of Crossings 

in Thousand

8

7

100

6

200

5

300

4

400

3

500

2

600

1

700

800

i. If the company builds the flyover bridge, what would be its profit maximizing price? 

Would that be the efficient output? Give reason.

Answer 1

P Q TR

8 0 0

7 100 700

6 200 1200

5 300 1500

4 400 1600

3 500 1500

2 600 1200

1 700 700

0 800 0

As total costs are fixed at $2 million, then its profit is maximized, when total revenue TR is maximized, so P = $4, Q = 400 thousand units.