F&M railroad ran from New York to Los Angeles in the 19th century. It would carry goods from New York, and it would pick up agricultural goods in Dillen, Texas along the way. The railroad had high fixed costs and low marginal costs. Also, the market for freight services was a lot more competitive in NY than it was in Dillen Texas.
- Farmers in Dillen, Texas were charged a much higher price than NY customers were, even though the cost of carrying NY freight was actually higher. In what ways might this difference in pricing be a good thing or a bad thing from a social perspective?
- Farmers in Dillen complained to federal regulators that they are harmed by the price discrimination in (a). They ask the government to make the railroad charge everyone the same price. If you were a government regulator concerned about the well-being of Dillen farmers, what are some questions you would ask in exploring whether this is a good idea?