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The State of Rhode Island is planning to build a state of the art highway from Providence to Newport. Brown University econometricians have determined that
The State of Rhode Island is planning to build a \"state of the art\" highway from Providence to Newport. Brown University econometricians have determined that the aggregate demand for highway services between the two towns is represented by s = 100, 000 20, 000p, where :5 measures the number of cars and p the toll. The total cost of the highway is estimated in 300,000 dollars. Driving on the highway will be free. The Governor has decided that the project will go ahead if the consumers' surplus covers at least the total costs (the underlying assumption he is making is that preferences are quasilinear over highway services and money spent on all other goods]. (a) Will the highway be built? (b) Newport's promotion campaign \"Come and See the City by the Sea\"is based on an annoying catchy song. This ad campaign would cost 10,000 dollars, demand would double to a: = 200, 000 40,0001). Would the project go ahead if the campaign is carried out? (c) Governor McKee is considering to introduce a toll on this new highway. If he does, the social welfare function that he would use for evaluating the viability of the project is the sum of consumers\" surplus and Government prot, the latter dened as toll revenue minus total cost. How high could the toll be in order for the project to be viable
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