Reference no: EM131374703
Brisbane and Johnsonbur g are two towns separated by the Win d River. Traffic between them crosses the river by a fern' run by the Johnsonburg Ferry Company, which charges a toll. The two towns are considering building a bridge somewhat upstream from the fern' crossing; there would be no toll on the bridge. Travel time between the towns would be about the same with the bridge as with the ferry because of the bridge's upstream location. The following information is available concerning the crossing.
Ferry/Bridge Information:
Fern's crossings(number/year) : 60,000
Average cost of fern-trip ($/crossing)
Ferry Fare($/crossing) : 1.5
Bridge toll ($/crossing) : 0
Expected Bridge crossing (number/year) : 90,000
EAc of bridge ($/year): 85,000
Note that all data are on an annual basis. The cost of the bridge is given as the equivalent annual cost of capital and operating costs. We assume that all bridge costs are independent of use, that is, there are no costs that are due to use of the bridge. The average cost per crossing of the ferry includes capital cost and operating cost.
(a) If the bridge were built, what would be the annual benefits to travellers?
(b) How much would the owners of the Johnsonburg Ferry Company lose if the bridge were built?
(c) What would be the effect on taxpayers if the bridge were built? (Assume that Johnsonburg Fern- pays no taxes.)
(d) What would be the net social gains or losses if the bridge were built? Take into account the effects on travellers, Johnsonburg Fer n owners, and taxpayers.
(e) Would the net social gains or losses be improved if there were a toll for crossing the bridge?
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