price output decisions for perfect competition and monopoly
Sun City, Arizona, a retirement community that features full-service
living arrangements, is considering two proposals to provide lawn care to
elderly residents. First, a national lawn care firm has offered to purchase the
city’s lawn care equipment at an attractive price in return for an exclusive
franchise on residential service. The second proposal would allow several small
companies to enter the business without any exclusive franchise agreement or
competitive restrictions. Under this plan, individual companies would bid for
the right to provide service in a given neighborhood. The city would then
allocate the business to the lowest bidder.
The city has conducted a survey of Sun City residents to
estimate the amount they would be willing to pay for various amounts of lawn
care service. The city has also estimated the total cost of service per
resident. Service costs are expected to be the same whether or not an exclusive
franchise is granted.
A) Use the
indicated price and total cost data to complete the following table
Hours of Price per Total Marginal Total Marginal
Care per Hour Revenue Revenue Cost Cost
Month
0 $22.50 $0.00
1 21.75 21.00
2 21.00 40.50
3 20.25 58.50
4 19.50 75.75
5 18.75 92.25
6 18.00 107.25
7 17.25 120.75
8 16.50
132.00
9 15.75 150.00
10 15.00 180.00
B) Determine
price and level of service if competitive bidding results in a perfectly
competitive price/output combination
C) Determine
price and the level of service if the city grants a monopoly franchise
