Question

2. SpaceX is company considering building a hyperloop la sealed system of tubes through which passenger pods travel free of air resistance and friction) from San Francisco to New York City. This system would dramatically reduce transportation times along the route. The hyperloop would cost $2.4 billion to build and nothing to maintain a. The following table gives the anticipated demand over the lifetime of the hyperloop. Find total revenue and marginal revenue for the various possible quantities of crossings. If SpaceX were to build the hyperloop, what would be its profit maximizing price? Would that lead to the efficient level of output? Why or Why not? Price per Crossing Number of Crossing in Millions Total Revenue in Millions Marginal Revenue 700 800 Profit maximizing price = Efficient output level? b. If SpaceX is interested in maximizing profits, should it build the hyperloop? What would be its profit or loss? Profit c. If the government were to build the hyperloop, what price should it charge assuming its goal is to maximize welfare?

Answer 1

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A)There is no variable cost,so profit will Maximizing at where total revenue is Maximizing.

So total revenue is at peak when price is equal to 4$ per crossing. And respective QUANTITY demanded of crossing is 400 million and total revenue is 1600 million.

The efficient QUANTITY is that which MAXIMIZE social welfare.

The social welfare MAXIMIZE where,

P=Marginal cost,

Because there is no variable cost,so marginal cost=0

So p=0 ,at which social welfare is Maximizing and quantity demanded is 800 million.

So efficent output is 800 million crossing.

B)The total revenue of space X by selling Profit Maximizing quantity=1600 million=1.6 billion dollars

The cost of building hyperloop=2.4 billion

So Profit of space X=1.6-2.4=-0.8 billion$

So space X would be making 800 million dollars loss by doing this project,so it shouldn't build the hyperloop.

C)

The social welfare MAXIMIZE where,

P=Marginal cost,

Because there is no variable cost,so marginal cost=0

So p=0 ,at which social welfare is Maximizing .

So goverment should charge p=0 ,to MAXIMIZE social welfare.