Travelers driving through New York City can use a freeway or the Cross Town Tollway to get
through the city. The weekly demand for using the tollway during rush hour is Q1 = 800 - 200P1 where
quantity demanded is measured in thousands of cars, and the weekly demand for the non-rush hour period
is Q2 = 2000 - 1000P2. New York City’s marginal cost of operating the tollway is MC = 0.02 + 0.001Q.
You will be exploring peak-load pricing.
a. What are the marginal revenue curves associated with the two demand curves for the tollway?
b. What are the profit maximizing prices for rush hour and non-rush hour use of tolls? What are the
quantities demanded at these prices?
c. You learn that currently the tollway charges $1.00 per car during the morning/afternoon rush hour,
and the toll is $0.40 per car at all other times. Do the current tolls generate too much or too little traffic on
the tollway during rush hour? What would you advise the city to do with regards to pricing for the Cross
Town Tollway?