Suppose there are three potential users of a freeway: Mr. 1, Mr. 2, and Mr. 3. The cost of the best alternative route for each commuter is as follows:
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Exercises
Commuter
Mr. 1 Mr. 2 Mr. 3
Alternate cost
$7 $5 $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
1 $2 2 $5 3 $9
Using this information, answer the following questions:
(a) Find the equilibrium allocation of traffic between the freeway and alternate routes.
(b) Compute the total commuting cost for all commuters for the fol- lowing four allocations of traffic. Total cost is the cost incurred by freeway users plus the cost incurred by commuters who use their alter- nate routes.
On freeway
No one
Mr. 1
Mr. 1, Mr. 2
Mr. 1, Mr. 2, Mr. 3
On alternate routes
Mr. 1, Mr. 2, Mr. 3 Mr. 2, Mr. 3
Mr. 3
No one
(Hint: Remember the definition of AC.)