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 per crossing (€)

Number of crossings

(in thousands)

800

a. If the company was 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 for passengers and vehicles to use the bridge? Explain your answer.

d. Should the government build the bridge? Explain.