Questions -
Q1. Now within this Boston market for porta potties:
a) Imagine the perfectly competitive all-inclusive price of renting each porta potty is $200 per day. Quantity demanded in the Boston market for porta potties is 6,000. Provide a graph of this perfectly competitive daily market in equilibrium.
b) Now, imagine you are the manager (with an economics modelling hobby) for a small porta potty provision business preparing for the summer construction season. The porta potty manufacturer, who is a monopolist, has increased the cost of porta potties (i.e. your main fixed cost) such that your firm just breaks-even renting 6 porta potties per day. Draw the firm-level model you face. (Hint: Graph marginal revenue, marginal cost, and average total cost curves).
c) Now, suppose that a long-discussed plan to build an East-West regional rail line connecting Albany and Boston is finally approved and construction begins immediately in Boston. Construction employment grows 22% to 75,000 in Boston. Draw the impact this will have on demand for porta potties, assuming it results in the overall market quantity supplied of porta potties rising to 7,500 at a price of $400 per day. What happens to producer surplus across the entire market?
d) Imagine again you are the small family porta potty provision company manager. You are revising your daily production model given the increase in market price to $400, assuming at this price you now will be able to supply 8 porta potties per day. Draw the new firm-level market model. (Hint: Graph marginal revenue, marginal cost, average total cost curves, and the area of profit or loss).
Q2. Now imagine you are the manager of a monopolist manufacturer of porta potties, primarily selling new units to porta potty provision companies.
a) Draw the market model which you face, assuming you produce 1,000,000 porta potties per year and sell them for $700 each even though you could produce as many as 2,000,000 per year and sell them at a perfectly competitive price of $200 per porta potty.
b) Label the areas of producer and consumer surplus, and dead-weight-loss in your model in part a.
c) Imagine that a new political party is ushered into office which is based primarily among small-business owners.