Econ 408 Final Exam 100 Points 14 points Estra Credit 1. (5+5+5) The City of Col
ID: 1129713 • Letter: E
Question
Econ 408 Final Exam 100 Points 14 points Estra Credit 1. (5+5+5) The City of Columbus, Ohio, is considering two proposals to privatize municipal garbage collection. First, a leading waste disposal firm has offered to purchase the city's plant and equipment at an attractive price in return for an exclusive franchise on residential service. A second proposal would allow several individual workers and small companies to enter the business without any exclusive franchise agreement or compctitive restrictions Under this plan, individual companies would bid for the right to provide service in a given residential area. The city would then allocate business to the lowest bidder. The city has conducted a survey of Columbus residents to estimate the amount that they would be willing to pay for various frequencies of 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. Complete the following table. Trash Price Total Marginal Marginal Pickups per per Month (S) Revenue Revenue CostCost Pickup ($) 0 5.00 4.80 4.60 4.40 4.20 4.00 3.80 3.60 3.40 3.20 3.00 0.00 3.75 7.45 11.10 14.70 18.00 20.90 23.80 27.20 30.70 35.00 5 8 10 B. Determine price and the level of service if competitive bidding results in a perfectly competitiveExplanation / Answer
A.
Trash Pickups
per Month
Price per
Pickup
Total
Revenue
Marginal
Revenue
Total
Cost
Marginal
Cost
0
$5.00
$0.00
--
$0.00
--
1
4.80
4.80
$4.80
3.75
$3.75
2
4.60
9.20
4.40
7.45
3.70
3
4.40
13.20
4.00
11.10
3.65
4
4.20
16.80
3.60
14.70
3.60
5
4.00
20.00
3.20
18.00
3.30
6
3.80
22.80
2.80
20.90
2.90
7
3.60
25.20
2.40
23.80
2.90
8
3.40
27.20
2.00
27.20
3.40
9
3.20
28.80
1.60
30.70
3.50
10
3.00
30.00
1.20
35.00
4.30
B. In a perfectly competitive industry, P = MR, so the optimal activity level occurs where P = MC. Here, P = MC = $3.40 at Q = 8 pickups per month.
C. A monopoly cartel maximizes profits by setting MR = MC. Here, MR = MC = $3.60 at Q = 4 pickups per month and P = $4.20 per pickup.
Trash Pickups
per Month
Price per
Pickup
Total
Revenue
Marginal
Revenue
Total
Cost
Marginal
Cost
0
$5.00
$0.00
--
$0.00
--
1
4.80
4.80
$4.80
3.75
$3.75
2
4.60
9.20
4.40
7.45
3.70
3
4.40
13.20
4.00
11.10
3.65
4
4.20
16.80
3.60
14.70
3.60
5
4.00
20.00
3.20
18.00
3.30
6
3.80
22.80
2.80
20.90
2.90
7
3.60
25.20
2.40
23.80
2.90
8
3.40
27.20
2.00
27.20
3.40
9
3.20
28.80
1.60
30.70
3.50
10
3.00
30.00
1.20
35.00
4.30
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