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Consider a small suburb with just eight residents, who each commute once per day to the central business district. The cost of a trip (7)
Consider a small suburb with just eight residents, who each commute once per day to the central business district. The cost of a trip (7) on the freeway with capacity T =3 is such that: = 2 ifT ST ACprivate = = 2 + (T - T)2 ifT > T The alternative commuting cost for each of the individual is not subject to congestion and is listed below: Alt. Person Cost Adam 16 Brigit 13 Cheryl 10 David 8 Emily Frank 6 Gail 5 Henry 3 a. Using the above information to compute AC for 7 - 1, 2, 3, . . .8. Next compute total cost from use of the freeway for the above 7 values as well as 7-0. Total cost is just 7 times AC. Finally, compute marginal (social) cost (MC), which equals the change in total cost from adding a person to the freeway. b. Find the equilibrium level of 7. Explain, c. Find the socially optimal level of 7. Explain
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