Question

Suppose there are three potential users for a freeway: Mr. 1, Mr. 2, and Mr.3 . The cost for the best alternative route for each commuter is as follows:

*Please complete all parts and tables: my professor adds questions that are not on other chegg posts*

Commuter	Alternative Cost
Mr. 1	$7
Mr. 2	$5
Mr. 3	$3

The average cost (AC) of using the freeway (i.e the cost per car) as a function of traffic volume, T, is as follows:

T	AC
T1	$2
T2	$5
T3	$9

Using this information, answer the following questions:

Part 1: Complete the table of costs below given the different distribution of commuters in Table 3.

Table 3: Distribution of Commuters

Freeway	On Alternate Routes
No one	Mr. 1, Mr. 2, and Mr. 3
Mr. 1	Mr. 2 and Mr. 3
Mr. 1 and Mr. 2	Mr. 3
Mr. 1, Mr. 2, and Mr. 3	No One

Table 4: Commuting Costs

Freeway Users	Avg Cost on Highways	Total Highway Cost	Total Alternate Cost	Total Cost
0
Mr 1
Mr. 1 & Mr. 2
Mr. 1, Mr. 2, and Mr. 3

Part 2: Graph the aggregate demand curve.

Part 3: Graph the average cost curve. Use the same diagram as Part 2.

Part 4: Find the equilibrium allocation of traffic (not the social optimum) between the freeway and alternate routes. In the equilibrium allocation, people only consider their private cost.

Part 5: What condition defines the socially optimal level of traffic?

Part 6: Base on your answer to Part 1, which allocation is socially optimal?

Part 7: How does the total cost at the optimum compare with the total cost at the equilibrium in terms of the number highway users and total cost to society?

Answer 1

Se [a]. The costs can be categorized as follows. ܕܦܢܝ cost of Ac of free computeolalte znate soutt M8.$ 7 $ 2 M82 M8.3_ - Ś 5 $ 3 * when the cost of Mo.i in using is very high when compared to that the of using freeway, Mr. i. will definitly use the freeway for his commutation since it will doastically reduse his commutation cost. * when it is the case of Mo.2, The cost of his Uling alternate route is $5 wheres when he also joins the free way, the cost of using it becomes $5. Thus he will be indifferent in using any of them. Since being the free way Mr.2 will also be using it. In the case of mo.3 the alternate cost of using the alternate route is only $3. When he also jains the free way of the cost of using it iht become costs becomes $9. per user and since it much higher than that alternate why

Mo. 3 will not use freeway * Thus the equilibrium allocation altermate way wild be 2-1 on of freeway and 1-2, since Mr.2 is any among indifferent one. the choices and chooses Total - cast. | $15 on freeway on alternate souts Icost Nobody mo.1 M8.2 M8.3/+7+ $5+$3 M8. |M8-2 M8.3 $2+ $5+ $3. MX.L.M8.2 | MY: 3. 1m8:1MX? mal nobody $ 9 +59 +$9. $ 10 L $ 13 - $27 1 [c]. * The Scoially adto optimal allocation is mo.1 using - freeway and both the others wing alternate vouts * If Mo. 2 joins moi in free way the cost per use becomes $5 which will increases the total. cost to $13 from the optimal cost of $ 10 * The quilibailam allocation of a-1 will cost $13. Whereas The socially optimal allocation of 1-2 costs only s 10 * Thus the differnce between elulbaium allocation and socially optimal allocation is $3. * I hope you find answer useful. If you do, please give me a thumbs up Thank you. ao