A toll highway between 2 areas are planned. Authority hesitates whether to build one or two lanes road.

If first lane becomes congested at volume 10,000 vehicle/day. Each additional 1,000 vehicles delines all cars' speed on the lane by 1 km/h. If road is twice as wide, congestion starts at 20,000 vehicles but now declines by 1 km/h for each 2,000 additional vehicles. The free-flow speed is 100 km/h.

If the only variable cost on this road is cost of drivers' time, which they value at $10/h and the length of the road is 50 km. All drivers travel on this full segment.

a) Draw and label a graph for the private marginal cost, social marginal cost, and demand curves. Each of these cost curves should be shown for 1 and 2 lanes on the same graph.

b) Now fill in the Excel spreadsheet like the following:

Volume 1 lane: 1 lane: 1 lane: 2 lanes: 2 lanes: 2 lanes: Speed PMC SMC Speed PMC SMC 5,000 10,000 10,001 10,002 10,003 10,004 10,005 30,000