Question
In: Economics
Suppose that your city grants one pizza delivery service a legal monopoly on delivering pizzas; all...
Suppose that your city grants one pizza delivery service a
legal monopoly on delivering pizzas; all other pizza delivery
services must close. CLO 4[4 Marks]
a. What will happen to the price and quantity of delivered
pizzas?
b. What will happen to the profit of the owner who has been
granted the monopoly?
c. Suppose that the owner offers to sell the pizza delivery
company to you. Would you be able to earn an economic profit? Be
careful when you answer this question; think about the price the
previous owner will charge you for the business.
Solutions
Expert Solution
a) if the city grants monopoly to one delivery agency and all the other pizza delivery service close then the price of delivery will increase and the quantity demand will most probably decline.
B) the profit of the owner will increase depending on the price charged by the agency. If they will charge moderate price for delivery that will not pinch customer pocket then the profit will increase as he is the only one to deliver pizza. If the agency charges way too much for delivery then there will be less no. Of orders for pizza and ut will not make the profit to go up for delivery agency.
C)if the owner offers to sell the the delivery agency then the profit that will be earned in the long term depends on the price that you are offered to buy it for and also the no. Of delivery orders the agency gets afterwards. But there is high chance the new owner will also make economic profit as it will also operate as a monopoly.
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