CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Suppose Georgia was the only state that produced peaches. If peaches sold for $6 a pound in Georgia and it costs 50 cents to transport a pound of peaches to Virginia, we would expect the price of a pound of peaches in Virginia to be ______.
A. more than $6.50 because Georgia farmers would have a peach monopoly
B. $6.00
C. $6.50
Explanation: Price reflects the value of the good at production plus transportation costs from the point of production to the point of sale. Therefore, the price of peaches would be $6 + $0.50 = $6.50/lb in Virginia.

User Contributed Comments 12

User Comment
cheekywinky I would assume that being a monopoly, Georgia would charge more than just the cost plus transport expense. 6.50 is the price in a competitive market, and this is not competitive because there is only one producer.
nike NO! This is not about monopoly as Georgia is a state, not a single producer. There are many supplier in Georgia that ship peaches to Virginia
yizhang it actually assume monopoly, in competitive market, seller may bear some cost~but in this example, buyer pay all addition cost.
MattNYC Good point Nike. Although 90% of the people, like cheeky would read it as if Georgia were a monopoly. i got this one wrong in the interest of full disclosure. I wish they would just give the FULL information in the question.
Lamkerst It is not a monopoly, it's perfect competition.
copus Tricky question...if you read it too quickly you going to answer A...like I did!
Joel1980 Doesnt matter if its a monopoly on peach production, if it's not a monopoly on transport! As anyone can go to Georgia, buy them there, and ship them out! (assuming no taxes etc)
JeremyMartin Try to apply the no arbitrage rule to this problem. If there is a price difference between the two places, traders will try to exploit it to profit. Eventually, the prices should equal.
Oksanata How do you know from this question that there are many producers of peaches in Georgia? It's highly possible that there is a cartel for peaches there and it acts as a monopolist.....
ars2011 Ok Georgia is the only State that produces peaches but Monopoly cannot be assumed what about Foreign produce?
stefanov11 this is bullshit... why would virginia sell the peaches at cost...?
farhan92 after some reflection i can see why its not A. However, the wording of question is bollocks
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