A company is considering building a bridge across a river. The bridge would cost

Question

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: Price (Dollars per crossing) 8 Quantity (Thousands of crossings) 0 50 100 150 200 250 300 350 400 4 0 If the company were to build the bridge, its profit-maximizing price would be $ , and it produce the efficient level of output. (Note: If the If the company is interested in maximizing profit, it company incurs a loss, be sure to enter a negative number for profit.) build the bridge because profit would be $

Explanation / Answer

The profit maximizing price is when the price is 4 per unit and the quantity is 200 units making it an output of 800 thousand dollars.

Should the company build the bridge? What will be its profit or loss if it does?

No, because the bridge will be built with a loss of $(800,000 - 2,000,000)

To build this bridge, for breakeven, the govt should charge $10 per crossing if the quantity is 200

No, the govt should build the bridge as then it will incur losses

Price Quantity Revenue MR 8 0 0 0 7 50 350 350 6 100 600 250 5 150 750 150 4 200 800 50 3 250 750 -50 2 300 600 -150 1 350 350 -250 0 400 0 -350

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