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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

A 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:

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a. If the company were to build the bridge, what would be its profit-maximizing price? Would that be the efficient level of output? Why or why not?

b. If the company is interested in maximizing profit, should it build the bridge? What would be its profit or loss?

c. If the government were to build the bridge, what price should it charge?

d. Should the government build the bridge? Explain.

Subpart (a):

To determine
Measuringrevenues, costs and profits.

Explanation

Total revenue can be calculated by using the following formula.

Total Revenue=Price × Quantity (1)

Substitute the respective values in Equation (1) to calculate the total revenue at quantity 100 units.

Total revenue=7×100=700

Total revenue is $700.

Marginal revenue can be calculated as follows:

Marginal revenue=Total revenuePresentTotal revenuePreviousQuantityPresentQuantityPrevious (2)

Substitute the respective values in Equation (2) to calculate the marginal revenue at quantity 100 units.

Marginal revenue=70001000=7

Marginal revenue is $7

Subpart (b):

To determine
Measuringrevenues, costs and profits.

Subpart (c):

To determine
Measuringrevenues, costs and profits.

Subpart (d):

To determine
Measuringrevenues, costs and profits.

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