How the higher-cost growers be driven out of business

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In 2009, the voters of Oakland, California, passed a measure to tax medical cannabis (marijuana), effectively legalizing it. In 2010, the City Council adopted regulatiuons permitting industrial-scale marijuana farms with no size limits but requiring each to pay a $211,000 per year fee. One proposal calls for a $100,000 square feet farm, the size of two football fields. Prior to this legalization, only individuals could grow marijuana. These small farmers complained bitterly, arguing that the large firms would drive them out out of the industry they helped to build due to economies of scale. Draw a figure to illustrate the situation. Under what conditions (such as relative costs, position of the demand curve, number of low-cost firms) will the smaller, higher-cost growers be driven out of business?

Reference no: EM13224583

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