3. Suppose there is a ten-kilometre-long two-lane highway from the suburbs to the city centre. It costs drivers twenty cents per kilometre in monetary costs plus ten cents per minute in the (opportunity) cost of their time travelling. Therefore, the total cost of the trip depends positively on the travel time. a. The number of vehicles per lane per hour (V) is the quantity and the total cost of the trip is the price. Suppose the (inverse) demand for travel is estimated to be p = 34.76 0.0183 V and the (inverse) supply of travel is estimated to be p = 0.04+0.0034 V. Find the competitive equilibrium price (total cost) and number of vehicles per lane per hour. - b. Since the more vehicles per lane per hour causes the average speed to be reduced, an additional vehicle per lane per hour not only increases the time travelled for that driver but also for all the other drivers as well. Suppose the extra time is estimated to be 0.016 additional minutes per vehicle per lane per hour. What is the cost in dollars to other drivers when an additional vehicle per lane per hour goes on the highway? Note this will be a function of the number of vehicles per lane per hour Cost to other drivers ivers(V) c. What is the deadweight loss associated with the competitive equilibrium compared to the efficient allocation? What is the 'congestion' tax rate per vehicle per lane per hour to that will lead to the efficient allocation of vehicles per lane per hour on the highway?
3. Suppose there is a ten-kilometre-long two-lane highway from the suburbs to the city centre. It costs drivers twenty cents per kilometre in monetary costs plus ten cents per minute in the (opportunity) cost of their time travelling. Therefore, the total cost of the trip depends positively on the travel time. a. The number of vehicles per lane per hour (V) is the quantity and the total cost of the trip is the price. Suppose the (inverse) demand for travel is estimated to be p = 34.76 0.0183 V and the (inverse) supply of travel is estimated to be p = 0.04+0.0034 V. Find the competitive equilibrium price (total cost) and number of vehicles per lane per hour. - b. Since the more vehicles per lane per hour causes the average speed to be reduced, an additional vehicle per lane per hour not only increases the time travelled for that driver but also for all the other drivers as well. Suppose the extra time is estimated to be 0.016 additional minutes per vehicle per lane per hour. What is the cost in dollars to other drivers when an additional vehicle per lane per hour goes on the highway? Note this will be a function of the number of vehicles per lane per hour Cost to other drivers ivers(V) c. What is the deadweight loss associated with the competitive equilibrium compared to the efficient allocation? What is the 'congestion' tax rate per vehicle per lane per hour to that will lead to the efficient allocation of vehicles per lane per hour on the highway?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. Suppose there is a ten-kilometre-long two-lane highway from the suburbs to the city
centre. It costs drivers twenty cents per kilometre in monetary costs plus ten cents
per minute in the (opportunity) cost of their time travelling. Therefore, the total cost
of the trip depends positively on the travel time.
a. The number of vehicles per lane per hour (V) is the quantity and the total cost
of the trip is the price. Suppose the (inverse) demand for travel is estimated
to be p = 34.76 0.0183 V and the (inverse) supply of travel is estimated to
be p = 0.04+0.0034 V. Find the competitive equilibrium price (total cost)
and number of vehicles per lane per hour.
-
b. Since the more vehicles per lane per hour causes the average speed to be
reduced, an additional vehicle per lane per hour not only increases the time
travelled for that driver but also for all the other drivers as well. Suppose the
extra time is estimated to be 0.016 additional minutes per vehicle per lane
per hour. What is the cost in dollars to other drivers when an additional
vehicle per lane per hour goes on the highway? Note this will be a function of
the number of vehicles per lane per hour Cost to other drivers
ivers(V)
c. What is the deadweight loss associated with the competitive equilibrium
compared to the efficient allocation? What is the 'congestion' tax rate per
vehicle per lane per hour to that will lead to the efficient allocation of vehicles
per lane per hour on the highway?
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