Individual or Group Project
The Town Council of the Isle Au Haut is
deeply concerned about the number of Philatelists practicing
their consulting trade in the community.
The industry has been operating for years and the Town
Council has been able to ascertain the following facts:
·
the business operates is a perfectly competitive
environment
·
the total cost per week is given by the function
TC = 100 +1/4q2
·
the market demand per week is given by the
function
Q = 6,750
-30P
The Town Council is considering
establishing a licensing fee of
$5200 per year ($100/week).
The revenues from the fee will be used to enforce health
standards in the Philatelic consulting shops.
It is also hoped that the fee will curtail both the
number of shops and the number of customers.
The local paper is full of outraged
editorials. These
editorials state that there are probably thousands of firms.
These firms are rumored to charge anywhere from $100 to
$500 per ”consult.”
Furthermore the proposed fee will simply be passed onto
the consumer and have no impact on the number of firms, or on
the number of customers.
Fortunately,
you, as an economist with expertise in perfectly
competitive markets, are available.
The town council asks you to prepare a report discussing
the impact of the proposed licensing fee.
Hints:
What can you deduce from the facts?
If the industry is in long run equilibrium, how many
firms are there? What is the price?
Due:
April 14, 2003
|