In Exchange for a Share in the Revenues Earned on Campus,State

question 52

Multiple Choice

In exchange for a share in the revenues earned on campus,State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus.Prior to the deal,three soft drink companies sold beverages on campus;now no other soft drink company is allowed to sell its products on campus or at university events.
Refer to the information above.Prior to the deal,a 12-ounce can of CheapFizz sold for 75 cents.After the deal you would expect a 12-ounce can of CheapFizz to sell for:

• A)75 cents because that is the market price.
• B)less than 75 cents because CheapFizz will have greater volume and so can sell for a lower price.
• C)more than 75 cents because demand for CheapFizz will shift to the left.
• D)more than 75 cents because other firms must exit the market.

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Definitions:

Average Total Cost

The total cost of production divided by the quantity produced, indicating the average cost per unit.

Economic Profit

The difference between total revenue and the total opportunity costs of all resources used in production, including implicit and explicit costs.

Long-run Equilibrium Conditions

A state in an economic model where all factors of production and markets adjust, resulting in no excess supply or demand.

Price-taker

A seller or buyer that has no control to dictate prices in the market, typically because of the highly competitive and uniform nature of the product.