CFA Practice Question
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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
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
|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|