the marginal cost of production, Management Theories

In a large city, both sellers (convenience stores, say) and consumers are evenly spread out. There is no market power on either side and the equilibrium price for "one purchase" at a convenience store is 100. The cost of walking to and from a store is 10x, where x is the distance in kilometers among the consumer's home and the store.  The marginal cost is equivalent for all stores at 60; the markup covers the fixed costs (rents, staff etc). In the competitive equilibrium, the average transport distance is small & positive, but can be assumed to be approximately 0. Consumers will buy where the total price, equivalent to the sum of the purchase and the cost of walking, is the smallest. I.e., all stores are identical, except for their location.

a)  Use the SSNIP-test methodology to verify the size of the geographical market by measuring  how large a (circular) area must be for a uniform (the same in the whole area corresponding to the hypothetical market) price increase by 10 % above the competitive price to be profitable for a hypothetical monopolist, with the above assumptions. As a first step, set up an expression that shows  which consumers will pay the higher price and which will incur a cost of walking to avoid paying the higher price.

b)  Do the similar, under the assumption that the marginal cost of production is 100.

c)  Suppose that the city is larger than the size of the relevant geographical market as estimated in a) and b). talk about the  arguments that can imply that the relevant geographical market can be city-wide (or national), despite your findings. You are not permitted to change the basic assumptions of costs and equilibrium prices above, but you can add other considerations. Are there arguments that work in the opposite direction, so that the true relevant market may be smaller than what you found?

 

Posted Date: 3/18/2013 9:13:06 AM | Location : United States







Related Discussions:- the marginal cost of production, Assignment Help, Ask Question on the marginal cost of production, Get Answer, Expert's Help, the marginal cost of production Discussions

Write discussion on the marginal cost of production
Your posts are moderated
Related Questions
Cash Flow Statement: Cash flow is a financial statement that summarizes an organizations sources and uses of cash over a specific period of period. Cash flow statements a

Management - meaning and scope  It is very difficult to accurately define management. There is no universally accepteddefinition of management. Management involves both acquis

The vice president of operations for a veterinary provide company has designed a new quality control process that she believes will significantly decrease the reject rate in the pa

Semi-Mechanical Systems The next stage saw the replacement of human labour by machines when mechanical charging systems were developed, essentially most subsequent systems, in

Hard Currency Hard currencies can be exchanged for other hard currencies at a designated exchange rate. Currency in which there is large confidence in the world markets, as opp

Short Term Financing & Working Capital: Short-term financial decisions generally involve short-lived assets and liabilities, and usually they are easily reversed. Short term or

Factorial Design: The factorial  experiment design  allows  the researcher to test two  or more  variables  at the same  time. It  determines whether  the variables interact t

Lambda" ( λ ) is the Greek character used to denote the average service rate in queuing theory TRUE          FALSE

Management is the administration of a process or those which conducting a process to ensure that the process meets completion in the most efficient manner.

i need some suggestion about Frederick Winslow Taylor