9. There is a road between the suburbs and downtown. The road is congested at rush hour.

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9. There is a road between the suburbs and downtown. The road is congested at rush hour. If 100 people use the road at rush hour, the trip takes 30 minutes. If the 101st person enters the road, everyone has to slow down, and the trip now takes 31 minutes. People value their time at $6 per hour (that is, $0.10 per minute). For simplicity, ignore all costs of using the road other than the cost of time.

a. What is the total social cost of 100 people using the road at rush hour?

b. What is the marginal social cost of the 101st person?

c. The governor of this state (who has taken a Principles of Economics course) would like to institute a toll that would equal the costs the last driver who uses the road imposes on the other drivers. How high should the toll be on this road during rush hour?

d. Suppose that at noon 50 people are using the road. The road is not congested, and the trip takes just 20 minutes. If the 51st driver enters the road, no one has to slow down, and the trip continues to take 20 minutes. How high should the toll be at noon?

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Microeconomics

ISBN: 9781292214351

2nd Global Edition

Authors: Daron Acemoglu, David Laibson, John List

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