Final answer:
To maximize revenue, a city should set toll rates in the inelastic portion of the demand curve because demand here is less sensitive to price changes and the quantity of drivers crossing will not significantly decrease with increased toll prices.
Step-by-step explanation:
When determining where to set toll rates to maximize revenue, a city needs to consider the elasticity of demand for the use of a bridge or toll road. Elastic demand indicates that consumers are sensitive to price changes, meaning that as prices increase, demand decreases significantly. Inelastic demand, on the other hand, suggests that demand does not substantially decrease with an increase in price.
In theory, to raise the most revenue from tolls, the city should set the toll in the inelastic portion of the demand curve. This is because despite the tolls increasing, the number of drivers crossing the bridge will not decrease significantly. Charging tolls in the elastic or unit elastic portion of the demand curve would not be as profitable, as an increase in price would lead to a more significant decrease in the number of drivers, therefore, not maximizing revenue.