USPS Increases Stamp Prices

EconEye Admin

4 years ago

The United States Postal Service (USPS) is raising the price of a first-class stamp. USPS pointed to increased operating expenses as a reason for its rate hike and falling mail volume.—newsnationnow.com

Answer the following questions to check your understanding of the story.

USPS has a monopoly in first-class mail. How does the USPS determine the price of a first-class stamp?

The USPS sets ______________.

a) the price low enough to compete with digital communications and couriers

b) the highest price consumers are willing to pay for the quantity at which marginal cost equals marginal revenue

c) the price equal to marginal revenue

d) the price high enough to break even

Wrong! - USPS operates as a monopoly. How does a monopoly determine the price to charge?

Correct! - USPS operates as a monopoly, so it determines the quantity of first-class stamps to provide by setting marginal cost equal to marginal revenue, and then it charges the highest price that consumers are willing to pay for that quantity.

Why is the USPS increasing the price of a first-class stamp?

The USPS is increasing the price of a first-class stamp because ______________.

a) With inflation, all prices are rising

b) the marginal cost of producing first-class postal services is increasing

c) USPS’s fixed costs are increasing

d) the demand for first-class stamps is decreasing

Wrong! - How does USPS determine the price of a first-class stamp? What has to change so that the price of a first-class stamp rises?

Well Done! - When marginal cost increases, the marginal cost curve shifts upward. With no change in demand, the marginal cost curve intersects the marginal revenue curve at a smaller quantity, and consumers are willing to pay a higher price than before costs increased.

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