Graphs Anyone?

(Sorry for the low quality of the graphs, they are hand drawn with love)

Let's start back in 1881, when the CPR was created. This graph shows how because it was a monopoly the demand curve for the CPR was extremely steep (more inelastic) because there was no options for cosumers to choose. However, costs were high in this time, and an unstable government was not subsidizing them as well as they could, in fact they were more likely to be regulating them because they were a monopoly. However, you can see that the price point is fairly high above the ATC which shows that CPR was more interested in profits (The box with orange shading is profits)then in consumer happiness seeing they were not producing at the fair-return point (Where ATC crosses the demand curve). Therefore we can see that CPR was not productively and allocatively efficient.

This graph represents the CNR. Notice that because this comany was put in place by the Canadian Government, creating competition for the CPR, we see that the demand curve is not as inelastic or less steep. Also the demand curve as moved left because now there is competition and subsitution is available to consumers. However, because there is only ONE other company as competition, the demand curve is still fairly steep and has not moved left all that much. Also, the price point has gone down, however, it is still a fair ways above the ATC and the fair-return point which shows that even with the CPR as competition CNR is still an allocatively and productively inefficient company. CNR, in this graph, has a larger profit (then the CPR, graph below) and the ATC is slightly closer to the demand curve which means that costs were slightly lower for CNR in this instance (The box with orange shading is profits).

This graph is of the CPR AFTER CNR entered the market. Due to the entrance of CNR, CPR's demand curve moves left AND becomes more elastic. In this graph, I choose to draw CPR having slightly higher costs and therefore they have lower profits. (The box with orange shading is profits). Despite, CNR's presence in the market, CPR is still productively and allocatively inefficient because, the price point is much higher then ATC and it is also higher then the fair-return point. Needless to say, the oligopoly formed by these two companies doesn't really change the inefficiency problems created by the monopoly of CPR, it may decrease the problem slightly, but not by a whole lot. This is good way of showing that oligopolies are almost as inefficient as their monopolitic counterpart.

Higher Production Costs? Larger Profits?

Who exactly has the higher production costs between these two firms? CNR is a larger railroad, with more cars and therefore more workers. CPR is a smaller railroad with fewer cars and fewer workers but has been around longer. Based on this you’d think that the CNR would have larger costs and therefore have a smaller profits and the opposite would be true for CPR. Not necessarily.

CNR is a government run organization, which means a certain amount of government money may potentially go into the CNR to help reduce their costs. Also, with consumers constantly having to choose between two railways that depending on where their product that needs shipping needs to go, with choose one over the other, production costs a bound to vary with changes in demand (and customer convenience).

By looking at their third quarter reports for 2009, it appears that CNR is doing much better then CPR. However, this does not factor in implicit costs; however it does give a fairly accurate representation to the successes and difference between the two companies.

As for larger profits, it would seem that for this year, CNR is doing a little better then the CPR. However how much of success of the CNR is based on the government is very hard to tell based on these two balance sheets.

Click Here to go to CPR's financial Report. Once there please click the link "investors" and then the link "financial Reports". This is the only way for you to be able to view these reports. Sorry for the inconvenience.