What will happen to marketplace for debit-card transaction

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Reference no: EM1352650

Assume the market for debit-card transaction is perfectly competitive. The current market price is 44 cents per transaction and firms, such as Visa and MasterCard, in this industry are making abnormal economic profits.

a. Draw a graph showing that Visa is making a profit. Be sure your graph includes Visa's demand curve, marginal revenue curve, marginal cost curve, average total cost curve, and average variable cost curve and make sure to indicate the area representing Visa's profits.

b. What will happen to the market for debit-card transactions and Visa's profits in the long-run? Use graphs to support your analysis and briefly explain your graphs.

c. What will happen to the market for debit-card transactions and Visa's profits if the government caps the debit-card transaction fee at 12 cents per transaction? Use graphs to support your analysis and briefly explain your graphs.

d. Do you think the government should cap the debit-card transaction fee? Why or why not?

Reference no: EM1352650

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