Question

1. The highway asphalt resurfacing business in upstate New York is highly concentrated with only three active firms. Weekly output and the marginal cost of asphalt resurfacing services by each company are as follows:

		Marginal Cost
	Output (miles per week)	Pataki Construction	Hillary & Co.	Cuomo-Sumo, Inc.
	1	$230,000	$230,000	$260,000
	2	210,000	210,000	240,000
	3	190,000	195,000	220,000
	4	200,000	180,000	205,000
	5	215,000	200,000	180,000
	6	230,000	215,000	200,000
	7	245,000	225,000	220,000

Competition from low-priced out-of-state competitors has been effectively limited by licensing requirements. Given this protection, local firms are able to sell as much output as they wish at the current wholesale market price of $200,000. However, industry prices haven't risen above $200,000 because this price triggers a flood of out-of-state competition.

A.	Calculate industry output and the market share of each firm based on the assumptions that prices are stable, and therefore that P = MR = $200,000, and that MC > AVC.
B.	Calculate industry output and the market share of each firm if removal of import restrictions reduces prices such as P = MR = $180,000. Again assume that MC > AVC.

Answer 1