Monopoly

3.2. Answer to Try It! Problem

Maintenance costs constitute the variable costs associated with building the road. In order to answer the first four parts of the question, you will need to compute total revenue, marginal revenue, and marginal cost, as shown at right:

1. Using the "midpoint" convention, the profit-maximizing level of output is 2.5 million trips per year. With that number of trips, marginal revenue ($0.60) equals marginal cost ($0.60).
2. Again, we use the "midpoint" convention. The company will charge a toll of $0.85.
3. The marginal revenue is $0.60, which is less than the $0.85 toll (price).