Suppose that there is a private companies currently operating a ferry service between mainland and countrys biggest island. The annual supply of tickets (passenger-trips) by the given private company is determined by the supply function QS = 10000PS, where QS is the quantity of ferry tickets (passenger-trips) supplied annually and PS is the ticket price charged per passenger per trip. The islands population has doubled in recent year and the demand for ferry tickets (passenger-trips) has also increased. Yet, there are still only two ferries servicing the island. Since the islands economy is largely dependent on the availability of frequent and rather cheap transport connections between mainland and island, the Government considers to enter into this market and add an additional ferry to service those travelling between the mainland and island during the next year. If the Government enters this market, then the total annual supply of ferry tickets (passenger-trips) will be characterized by the supply function QS = 10000PS+90000. The annual demand for ferry tickets (passenger trips) is currently characterized by demand function: QD = 240000 - 2000PSand is expected to remain characterized by the same function also during the next year.

a) Find the total financial revenue that the Government-operated ferry will bring annually?

b) Find the annual social economic benefit associated with such Government action?

Suppose that there are no changes expected in the pre-project demand function (which describes the relationship between the price and the quantity demanded) and in the pre-project supply function (which describes the relationship between the price and the quantity supplied by other suppliers, except the project) during the start to the end of the project. Illustrate the initial situation in this market as well as the changes caused by the Government intervention in this market on the graph. Use numerical values and identify clearly the equilibrium in the market that exists prior to the intervention and the equilibrium that will exist in this market if the Government adds additional ferry into this market. Show on the graph clearly the area that represents annual economic benefit associated with the Government plan considered.