Consider a city that has created a monopoly market for package deliveries. Suppose market demand for annual deliveries in millions is Q = 18 – 1.0P, each delivery truck’s weekly cost is C = 1800 + 3 q and each truck can make 280 deliveries per week. It sets a delivery price of $15.
a) What is the excess profit per year earned by each truck?
b) The city decides to switch from permits to license fees. The city opens the market to entry. If it sets a delivery price of $15 and a weekly license fee of $900 calculate and report the effects on the excess profits from a delivery truck owner. How much revenue will the city make from the license fees if the number of trucks that choose to enter the market is just enough to cover demand?