Question

QUESTION 9 Suppose there are three potential users of a freeway: Mtr I, Mr 2, and Mr. 3. The cost of the best alternative route for each commuter is as follows: Commuter Alternate Cost Mr. 2S5 S1 The average cost AC of using the freeway (i.e., the cost per car) as a function of traffic volume T is as follows: AC Page 26 Mr 1 S4 Mr. 2 S4.3 Mr. 3 s9 Find the equilibrium allocation of traffic between the freeway and alternate routes. Mr should stay on freeway and Mr should stay on alternative route. (Example: if you think Mr. 1 should stay on freeway and Mr. 2 & Mr.3 should stay on altermative ways, you should fill in the first blank: 1; fill in the second blank 2,3 with a comma.)

Answer 1

Mr 1 and Mr. 2 should stay on freeway and Mr 3 should stay on alternative route.

Explanation: For Mr. 1 and Mr. 2, Average cost of using freeway is less than alternate cost, so using freeway is optimal.

For Mr. 3 alternate route cost less than average cost of using freeway so he should use alternate route.