ECO 500 – Managerial Economics and Business Strategy

This question is similar to Question #18 in Chapter 2 of Managerial Economics and Business Strategy by Michael R. Baye & Jeffrey T. Price (with different numerical values).

📘 Scenario

From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers who make withdrawals from other banks' ATM machines.

Key information:

1. Noncustomers earn $20 per hour
2. Current ATM fee: $3.25 per transaction
3. Proposed fee cap: $0.75 per transaction
4. At $0.75, banks would supply 5 million transactions
5. At $0.75, noncustomers would demand 21 million transactions
6. For every 1 million transaction shortage, consumers must spend 1 extra minute traveling to another ATM

📌 Instructions

1. Round all answers to the nearest penny (2 decimal places).

❓ Questions

A)

Based on this information, what would be the nonpecuniary cost of legislation that places a $0.75 cap on ATM fees for noncustomer transactions?

B)

What would be the full economic price of this legislation?

🧠 What This Question Tests

This problem requires application of:

1. Price ceiling analysis
2. Shortage calculation
3. Opportunity cost of time
4. Nonpecuniary cost measurement
5. Full economic price calculation

Students must calculate the shortage created by the price cap and translate waiting/travel time into a monetary opportunity cost using wage data.

🚀 Need Help Solving This?

If you need:

✔ Step-by-step calculations

✔ Clear explanation of nonpecuniary cost

✔ Economic reasoning written in academic format

✔ Proper rounding and final answers

✔ Help preparing for quizzes or graded discussions

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