A City Has Decided To Pay A Locally Owned Construction Firm To Build A New Mile

A city has decided to pay a locally owned construction firm to build a new mile long bridge. The city
will borrow to finance the construction and will pay for the loan and all operating costs by raising its
property tax so that the annual tax revenue will be $20M (M for million) higher during the 50 year
expected lifetime of the bridge. The government expects that the demand curve for crossings over the
bridge will be linear, with a choke price of $10. They plan to charge no toll and expect that there will be
8M crossings per year, only by city residents driving cars, and almost never any traffic congestion. In the
problems below, except in part f, assume that the government’s expectations are correct.
a.[4] Find the total consumer surplus that drivers will get by crossing the bridge during a typical year. Show
all your steps.

Expert Answer

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