In downtown Whoville, there are several department stores and several parking lots. The department stores face upward sloping marginal cost curves. Parking spaces are provided at zero marginal cost. To shop at the stores, you have to park your car. (There is no other way to get downtown.)
a. Suppose the department stores are competitive, and all the parking lots are owned by a single monopolist. Use a graph to illustrate the price of department store merchandise.
In terms of your graph, what determines the price of a parking space?
b. Suppose the department stores are owned by a single monopolist and the parking lots are competitive. Now what determines the price of a parking space?
c. Which is better for consumers: competitive department stores and monopolized parking lots, or monopolized stores and competitive parking lots? Which yields a higher social gain?