1. One of the pandemic measures adopted by the city of Regina consists of a food-delivery fee cap (maximum fee) of 18% of the pre-tax order price. This fee is charged by delivery services such as Uber Eats, DoorDash, and Skip the Dishes. Some restaurants in the city argue that the cap (in percentage terms) is to high due to the small profits earned in this industry.
1.1. Represent graphically the equilibrium in the market for food (restaurants) in the city in the absence of any interventions. (2 marks)
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Market for restaurant
1.2. Show the effect of the food-delivery fee cap on the outcome of this market and consumer and producer surplus. (2 marks)
1.3. Explain and show graphically why some restaurants in the city complain about the food-delivery fee cap being too high. (2 marks)
1.4. Suppose that the market for restaurants in Regina is a market with monopolistic competition. Explain how restaurants in this market transition from the short-run to the long-run equilibrium. What is the role of the food-delivery fee cap in this transition?
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