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
Q. What are the principles of preventive control? 1) Managers performance as well undergoes evaluation 2) Professional managers commit minimum errors and 3) Management fundamen


what is the need for documents in international business with examples

The problem is: ''Bake It'' has been using ingredients from a supplier who has been using false origin labeling. The Task is: to identify the cause of the problem under the crisi

PRODUCTIVITY OR EFFICIENCY-ORIENTED DEFNITIONS F.W.Taylor, who is called the father of scientific management, explain management as "the art of knowing what you need to do and

Q. What is Managerial grid? Blake in addition to molten explained leadership with the mangers concern on people and production. On the basis of above criteria they suggested fi


#quCase study 2 You have been requested by your manager to develop a strategic presentation for use in recruiting potential staff and interns to your organisation estion..

A talking paper to write by analysing a case study given by professor.