Price/Output Determination
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Tallahassee Cars unlimited, Inc., a rapidly expanding new entrant to this metropolitan area, is considering two proposals for the provision of its cosmetic detailing of cars (washing, waxing, polishing, engine cleaning, etc.) First, a large janitorial agency with some experience in the detailing of cars has offered to purchase the business detailing equipment in return for an exclusive franchise. A second proposal would allow several small contractors to enter the business without any exclusive franchise agreement or competitive restrictions. Under this plan, individuals would bid for the right to provide service on groups of cars as they were delivered to the lot, presumably based on how busy they were at the time. The car lot would then allocate business to the lowest bidder.
A. Use the indicated price and cost data to complete the following table.
Hours of Price
Detailing Per Total Marginal Total Marginal
per Car Hour Revenue Revenue Cost Cost
0 $24.00 $0.00
1 23.4 18
2 22.8 36
3 22.2 54
4 21.6 72
5 21 90
6 20.4 108
7 19.8 126
8 19.2 144
9 18.6 162
10 18 180
B. Determine price and the level of service if competitive bidding results in a perfectly competitive price/output combination.
C. Determine price and the level of service if the car lot grants a monopoly franchise.
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