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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 $30M ( M for million) higher during the 50 year expected lifetime of the bridge. The government expects correctly that the demand curve for crossings over the bridge will be linear, with a choke price of $8. They plan to charge no toll and expect correctly that there will be 10M crossings per year, only by city residents driving cars, and never any traffic congestion. a.[6] Draw a graph of the demand curve for crossings over the bridge during a year. Show in the graph the total consumer surplus that drivers will get by crossing the bridge during a typical year. Find that consumer surplus, showing all your steps. b.[3] Find the average cost of the service provided by the bridge when no toll is charged. Show how you get your answer. c.[3] Estimate the average cost to the government (the bridge owner) from one additional crossing during a typical year. Why is there such a cost? d.[5] The local construction firm that the government would hire could have borrowed money and used it to pay its own cost of building the bridge. The firm would have had to pay $30M per

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