Competitive Markets Versus Cartels. Suppose the City of Danville, Ohio, is considering two proposals to privatize municipal garbage collection. First, a handful of leading waste disposal firms have offered to purchase the city’s plant and equipment at an attractive price in return for exclusive franchises on residential service in various parts of the city. A second proposal would allow several individual workers and small companies to enter the business without any exclusive franchise agreements or competitive restrictions. Under this plan, individual companies would bid for the right to provide service in a given residential area. The City would then allocate business to the lowest bidder. The City has conducted a survey of Danville residents to estimate the amount that they would be willing to pay for various frequencies of service. 

  

The City has also estimated the total cost of service per resident. Service costs are expected to be the same whether or not an exclusive franchise is granted.    

  

A. Complete the following table. 

              

  

B. Determine price and service level if competitive bidding results in a perfectly competitive price–output combination.

C. Determine price and the level of service if local regulation results in a cartel.  

Trash Pickups Price Per Pickup ($) Total Marginal Total Marginal Per Month Revenue Revenue Cost ($) Cost 5.00 0.00 1 4.80 3.75 2 4.60 7.45 3 4.40 11.10 4 4.20 14.70 4.00 18.00 6. 3.80 20.90 7 3.60 23.80 8 3.40 27.20 6. 3.20 30.70 10 3.00 35.00