Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 24, Problem 9CQ
To determine

Comparison between resource allocation and market out comes under restricted licensing system and competitive system.

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Suppose that 2,000 people are interested in attending ElvisLand. Once a person arrives at ElvisLand, his or her demand for rides is given by x = max{ 5 – p, 0}, where p is the price per ride. There is a constant marginal cost of $2 for providing a ride at ElvisLand. If ElvisLand charges a profit-maximizing two-part tariff, with one price for admission to ElvisLand and another price per ride for those who get in. How much should it charge per ride and how much for admission? Correct answer is $2 per ride and $4.50 per admission, how does one solve this problem?
A city in a developing country does not have a provider of water and sanitation services, leading to poor health outcomes for its citizens. A firm is considering entering that market. The cost curve is C(q) = 10+2q, and the inverse demand is P(q) = 10—q. The government of that city knows that, because of the high fixed cost to operate in this market, any entrant is likely to become a monopolist. Thus, they decide to implement the following regulation: the firm is not allowed to choose a price above an upper limit of p (which the government chooses and sets in the law before the firm decides to enter). There will be no transfers between the government and the firm. Assume that the firm only enters the market if it can get profits of at least zero, given the government's choice of p. Suppose that the government's goal is to maximize consumer surplus. Which of the following statements is the most correct? (a) The government needs to set p = 2, because it's the marginal cost. That…
In Fruitland, strawberries are sold in 4-litre baskets to customers on a "pick-your-own" basis. There are 2 farmers who sell strawberries: Mickey and Kit. There are no costs of supplying strawberries for sale for either farmer, so each has MC = ATC = 0. Profit therefore is simply TR. Market demand for strawberries is given in the accompanying table. If the market were served by a monopolist, the quantity traded would be 125 baskets, the price per 4-litre basket would be $7.50, and the profit for the firm would be $937.50. If Mickey and Kit decided to collude, each would have an individual quantity supplied of 62.5 baskets and each would have profits of $468.75. Suppose Mickey and Kit agree to split the monopoly outcome. Kit, acting in her own self-interest, realizes that she can cheat and supply 87.5 baskets; when she does, Kit's profits are $525.00 and Mickey's profits are $375.00. Mickey decides to retaliate and increases his supply to 87.5 baskets too; when he does, Kit's profits…
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