7. Suppose bars in the town of Chapel Arbor can be thought of as a monopolistically competitive industry. Suppose that a group of well meaning citizens is campaigning to have no more new liquor licenses issued in Chapel Arbor, meaning that no new bars can be opened unless a license is purchased from an existing bar. Suppose also that demand has increased such that, if there are no new licenses, the typical bar owner can expect to earn $5,000 profit per year. If the interest rate is 5% what is the most money the typical bar owner would be willing to contribute to make certain that the group is successful in making sure no new licenses are issued. (Hint: they would be willing to contribute an amount almost as large as the value of a license).
  1. just under $20,000.
  2. just under $25,000.
  3. just under $50,000.
  4. just under $100,000.
  5. just under $500,000.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved