2000 + 2000 + 2000 + 1+r (1 +1")2 (1 +103 2000 (I + 1 + 1 + 1 + ) _ 1+r (1+:r")2 (1+r)3 Consider the infinite sum with 1/ (1 + r) 1+r 1+r (1+r)2 (1+r)3 (1+ 1 + 1 + 1 + ) 1 1+1" (1+r)2 (1+r)3 1+1" 1 1 1 -1 =1=> (+1+r+(1+r)2+(1+r)3+ ) (1 1)(1+1+ 1 + 1 +)1 _ u .oo = (:> 1+1\" 1+r (1+r)2 (1+r)3 ( r ) (1+ 1 +1 +1 + ) 1 . = => 1+?" 1+?\" (1+r)2 (1+r)3 (1+ 1 + 1 + 1 + )_1+T 1+r (1+r)2 (1+r)3 _ r Therefore, the present value of earning 2000 every year is 2000 - (1 + r)/r = 2000 - 1.1/0.1 = 22,000. The medallions will sell in the market for 22,000 each. e. No, a person who buys a medallion at this price will earn zero economic prot 1.0 0.40 (1 20 AC=MC Q (10,0009 6 8 10 The marginal and average cost curves of taxis in Metropolis are constant at 0.20/mile. The demand curve for taxi trips in Metropolis is given by P = 1 0.00001Q, where P is the fare, in pounds per mile, and Q is measured in miles per year. The industry is perfectly competitive and each cab can provide exactly 10,000 miles /year of service. a. How many cabs will there be in equilibrium and what will be the equilibrium fare? Now suppose that the city council of Metropolis decides to curb congestion in the city centre by limiting the number of taxis to 6. Applicants participate in a lottery, and the six winners get a medallion, which is a permanent license to operate a taxi in Metropolis. b. What will the equilibrium fare be now? c. How much economic prot will each medallion holder earn ignoring the opportunity cost of the medallion? d. If medallions can be traded in the marketplace and the rate of interest is 10 % per year, how much will the medallions sell for? (Hint: What is the present value of earning 2000 every year assuming that you can operate a taxi forever?) e. Will the person who buys a medallion at this price earn a positive economic prot