Consider a city with a congestion problem on a certain stretch of a certain highway. Suppose that the daily demand for trips along this stretch is given by Q=3000-150P. Marginal private cost is given by MPC=(2/600)Q. Suppose also that the marginal external cost associated with trips is given by MEC=(1/600)Q. Illustrate your answer with an graph. a. Find the privately optimal number of trips made along the road each day. b. Find the socially optimal number of trips? c. What should be the per trip congestion tax be?
Consider a city with a congestion problem on a certain stretch of a certain highway. Suppose that the daily demand for trips along this stretch is given by Q=3000-150P. Marginal private cost is given by MPC=(2/600)Q. Suppose also that the marginal external cost associated with trips is given by MEC=(1/600)Q. Illustrate your answer with an graph.
a. Find the privately optimal number of trips made along the road each day.
b. Find the socially optimal number of trips?
c. What should be the per trip congestion tax be?
d. Suppose that the demand for trips is cyclical: there are two time periods, peak and off-peak. Assume that the demand function given above is for the peak period, and also assume that the OFF-PEAK demand is given by Q=2250-100P. What would be the socially optimal number of OFF-PEAK trips?
e. What should be the per trip congestion tax during the OFF-PEAK period?
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