Exam 11: Performance and Strategy in Competitive Markets

Recycling Fee and Elastic Demand. Assume that the weekly supply of 16-ounce bottles of soda at convenience stores in the Twin Cities of Minneapolis and St. Paul is a function of price such that: where Q is the number of sodas sold in convenience stores (in thousands) and P is the soda price. Assume demand is perfectly elastic at a price of $1.

Franchise Tax and Inelastic Demand. Assume the supply of sewer and water services in the City of Portland can be described as: where Q is thousands of homes served per month with sewer and water service, and P is the price per month. Also assume that sewer and water service demand is perfectly inelastic at a quantity of 25(000). This means that the sewer and water demand curve can be drawn as a vertical line that passes through 25(000) on the X-axis.

In competitive market equilibrium, social welfare is measured by the:

Producer surplus is the:

Profits stemming from market power reflect:

Franchise Tax and Inelastic Demand. Assume the supply of sewer and water services in the City of Greenville, North Carolina, can be described as: where Q is thousands of homes served per month with sewer and water service, and P is the price per month. Also assume that sewer and water service demand is perfectly inelastic at a quantity of 50(000).

A price floor is a costly and commonly used mechanism for:

Undue market power is indicated when buyer influence results in:

Compulsory Benefit Costs. The Telemarketing Louisianan Company generates leads for a major credit card company using over-the-phone solicitations. Each lead generated brings TLC $10 in fees, and these fees are stable given the competitive nature of the telemarketing business. TLC's relies upon independent contractors (sales associates) who work on a commission-only basis. Weekly total cost (TC) and marginal cost (MC) relations are: where Q is thousands of refinancing applications processed. Suppose the US Department of Labor recently ruled that TLC's sales associates must be considered employees entitled to benefits under the Employee Retirement Income Security Act (ERISA). As a result, TLC's marginal cost of doing business will rise by $1 per unit. TLC's fixed expenses, which include a required return on investment, will be unaffected.

No externalities exist when: