Question

4. problems and applications q4a company is considering building a bridge across a river. the bridge would cost $2 million to build and nothing to maintain. the following table shows the company's anticipated demand over the lifetime of the bridge:pricequantity(dollars per crossing)(thousands of crossings)8071006200530044003500260017000800if the company were to build the bridge, its profit-maximizing price would be$, and it produce the efficient level of output.if the company is interested in maximizing profit, it build the bridge because profit would be$. (note: if the company incurs a loss, be sure to enter a negative number for profit.)if the government were to build the bridge, it should charge a price of$.true or false: the government should build the bridge.truefalse

Answer 1

To maximize profits, a company should set a price in the inelastic portion of the demand curve, where price changes result in smaller percentage changes in quantity demanded. However, without additional information on costs, it's not possible to determine the profit-maximizing price or confirm profitability of building a bridge. For a government-built bridge, pricing would center on marginal cost to promote efficient resource allocation.

Step-by-step explanation:

If a company is considering building a bridge across a river and has determined expected demand at various price points, to maximize profit, it should identify the point where marginal revenue equals marginal cost. However, with the provided table, we don't have direct information about the marginal costs or marginal revenue for the bridge, but we can infer some information.

To maximize profits, the profit-maximizing price would be at the point where the company can charge the highest possible price while still attracting enough customers. This point is also where the elasticity of demand is unit elastic. The elasticity of demand is an important indicator of how changing the price will affect the quantity demanded.

The company would want to operate in the inelastic portion of the demand curve to maximize total revenue—where a change in price leads to a smaller percentage change in the quantity demanded. However, without further information (such as marginal costs), we cannot determine the exact profit-maximizing price or confirm if building the bridge would be a profitable endeavor.

In contrast, a government-built bridge often focuses on efficiency and public welfare rather than maximizing profit. If a government builds the bridge, they would likely charge a price that equates to the marginal cost of additional crossings, promoting more optimal resource allocation.