2. Natural Monopoly: A company is considering building a bridge across the Monogahela river at a point
where there are no other bridges nearby. The bridge would cost $2 million to build and nothing to
maintain. The following table gives the company’s anticipated demand over the lifetime of the bridge: Price per Crossing Number of Crossings In Thousands $8 0 $1 100
$6 200
$5 300
$4 400
$3 500
$2 500
$1 700 $0 800
1,If the company were to build the bridge, what would be its profit-maximizing price? Would that lead to the efficient level of output? Why or Why not?
2,If the company is interested in maximizing profits, should it build the bridge? What would be its profit or loss?
3,If the government were to build the bridge, what price should it charge assuming its goal is to maximize welfare?
4,Should the government build the bridge? Explain your answer in no more than two sentences.
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