Assume your city government has been contracting with a single garbage collection firm that has been granted an exclusive franchise, the sole right, to pick up trash within the entire city limits. However, it has been proposed that companies be allowed to compete for business with residents on an individual basis. The city government has estimated the price residents are willing to pay for various numbers of garbage collections per month and the total costs facing the garbage collector per resident as shown in the following table.
a. What are the fixed costs per month of garbage collection per resident?
b. Considering that the current garbage collection firm the city has contracted with has a monopoly in garbage collection services, what is the current number of collections residents receive per month and the price charged residents for each collection? What is the economic profit received from each resident by the monopoly firm?
c. If competitive bidding were allowed and therefore a competitive market for garbage collection services developed, what would be the number of collections per month and the price charged residents per collection? What is the economic profit received from each resident by the competitive firms?
d. Based on the above analysis, should the city government allow competitive bidding? Why? Would you expect there to be any quality differences between the monopolistic and competitive trash collection firms?