Perfect Competition and Monopoly
The City of Columbus, Ohio, is considering two pro- posals 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 fran- chise on residential service. A second proposal would allow several individual workers and 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 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.
|
TrashPickups per Month
|
Price per Pickup
|
TotalRevenue
|
MarginalRevenue
|
Total Cost
|
Marginal Cost
|
|
0
|
$5.00
|
|
|
$0.00
|
|
|
1
|
4.80
|
|
|
3.75
|
|
|
2
|
4.60
|
|
|
7.45
|
|
|
3
|
4.40
|
|
|
11.10
|
|
|
4
|
4.20
|
|
|
14.70
|
|
|
5
|
4.00
|
|
|
18.00
|
|
|
6
|
3.80
|
|
|
20.90
|
|
|
7
|
3.60
|
|
|
23.80
|
|
|
8
|
3.40
|
|
|
27.20
|
|
|
9
|
3.20
|
|
|
30.70
|
|
|
10
|
3.00
|
|
|
35.00
|
|
B. Determine price and the 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.