Describe an example of a network externality

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1. A trolley must have 30 passengers paying $1 each in order to meet the full cost of a trip across town. Right now, only 10 passengers are willing to pay the $1 fare to get on the trolley, but the trolley must stick to its schedule, so it sets off on its route even though it is not full. Just as the trolley is starting to move, a group of 10 schoolchildren rush over and ask if they can get on at half-price. Assuming that the driver is in control and wants to maximize profits, should the driver let them on at half-price? Explain why or why not, using the vocabulary of marginal analysis.

2. Describe an example of a network externality. (The textbook describes several examples; try to think of a different one from those presented in the book.)

Reference no: EM131240741

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