You are a member of your city’s cable television regulatory commission. For the third time this year, the
local cable provider has come before the commission, asking for a rate increase. This time it is to cover the
cost of new, state-of-the-art cable relay equipment. Last month it was for money for advanced training for
cable installers. The time before that, it wanted to cover the cost of new office equipment. How do you
explain the cable company’s behavior?
2.You are the mayor of your home town, and one day you arrive at city hall to find angry voters
demonstrating against you. They are mad because your office created a garbage-collection monopoly by
awarding only one company a permit to collect garbage in your town. The voters claim that the company is
overcharging and providing poor service. They want you to do something that will lower rates and improve
service. You call your staff economist, who presents evidence that there are substantial increasing
economies of scale to garbage collection. What are your options if you are interested in efficiency?
3.Alan runs the only taxi service in town. Whenever he raises his fares above $.30 per mile, other taxi firms
enter and compete with him to drive his fares back to $.30 per mile. Describe what kind of market Alan is
operating in and if it is plausible that Alan might set his fare so as to achieve efficiency? Explain.
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