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Homework answers / question archive /  A for-pro?t ?lm is bidding on a contract that would make it the sole provider of trash and recycling pick—up services in a city

 A for-pro?t ?lm is bidding on a contract that would make it the sole provider of trash and recycling pick—up services in a city

Economics

 A for-pro?t ?lm is bidding on a contract that would make it the sole provider of trash and recycling pick—up services in a city. The city-wide demand for trash and recycling pick-up is given by QD = 50,000 7 ZOOP where Q is measured in tons of material picked up and P is the price per ton. That demand curve implies that the inverse demand (i.e_) revm'ting the demand equation with Q as a function of P) for trash and recycling pick—up is P = 250 7 0.005Q. Page 1 0" If the ?rm Wins the contract, it will be able to choose price as a monopolist and its marginal revenue curve would be given by MR : 250 7 0.010. The ?lm's marginal cost is constant at $ 100 per ton,

If the fiim wins the contract, it will be able to choose price as a monopolist and its marginal revenue curve would be given by MR : 250 — 0.010. The ?lm's marginal cost is constant at $100 per ton, MC = 100, which implies that its total cost is directly proportional to Q, TC : 1000. [2 points] What are the pro?t-maximizing price and quantity for the ?rm if it wins the contract? [3 points] In a standard diagram with Q on the horizontal axis and P on the vertical axis, show yotu' answer to part a. Be sure to show how both price and quantity are determined, and clearly label all relevant curves. Also, show the equilibrium price and quantity if this market were competitive. [2 points] At the monopoly equilibrium from part a, calculate consumer surplus. producer surplus. and deadweight loss. Also, what would consumer surplus be under competition? [1 point] What is the maximum amount the fnm would be willing to bid for the contract? Assume that it will not be able to operate in the city unless it wins the bid and will therefore have no pro?t. [2 point] A consumer advocacy group argues that granting this ?rm monopoly power hurts city residents/consumers. In response, a city commissioner announces that the ?rm's contract bid will go back to the residents/constuners in the form of lower taxes. In that case. the commissioner argues that consumers will not, in net, be hurt by the granting of monopoly power. Explain why the commissioner is wrong. (Hm Is Your answers [aparts c and d shouldfacmr into your explanation.)

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