Course: ECO 110

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Unit 5 Practice Problem

Unit 5 Practice Problem

The Troll Road Company is considering building a toll road. It estimates that its linear demand curve is as shown below. Assume that the fixed cost of the road is $0.5 million per year. Maintenance costs, which are the only other costs of the road, are also given in the table.

Tolls per trip | $1.00 | 0.90 | 0.80 | 0.70 | 0.60 | 0.50
Number of trips per year (in millions) | 1 | 2 | 3 | 4 | 5 | 6
Maintenance cost per year (in millions) | $0.7 | 1.2 | 1.8 | 2.9 | 4.2 | 6.0

1. Using the midpoint convention, compute the profit-maximizing level of output. (Use the fixed cost above plus the variable cost of maintenance above to determine the total cost.  Then use that number to determine MC)  (Then use the tolls per trip times the number of trips to find the TR.  From that number determine the MR.  Find where MC = MR ).
2. Using the midpoint convention, what price will the company charge?  Use the figure at the midpoint, or half way in between.