Answered step by step
Verified Expert Solution
Question
1 Approved Answer
. Exercise 3 (24.5): In 1990, the town of Ham Harbor had a free market in taxi service. Suppose the constant marginal cost per trip
. Exercise 3 (24.5): In 1990, the town of Ham Harbor had a free market in taxi service. Suppose the constant marginal cost per trip of a taxi ride is $5, and that the average taxi has a capacity of 20 rides per day. Let the demand function for taxi rides be given by D(p) = 1200 - 20p, where demand is measured in rides per day, and rice is measured in dollars. Assume that the industry is perfectly competitive. a) What is the competitive equilibrium price per ride? What is the equilibrium number of rides per day? How many taxicabs will there be in equilibrium? b) In 1990 the city council of Ham Harbor issued a license to each of the existing cabs so that the demand for rides equals the supply of rides, but no new licenses will be issued in the future. In 1995 costs has not changed, but the demand curve for taxicab rides has become D(p) = 1220 - 20p. What was the equilibrium price of a ride in 1995? c) What was the profit per ride in 1995, neglecting any costs associated with acquiring a taxicab license? What was the profit per taxicab license per day? If the taxi operated every day, what was the profit per taxicab license per year? d) Suppose that the commission decided in 1995 to issue enough new licenses to reduce the taxicab price per ride to $5, How many more licenses would this take? f) Assuming that demand in Ham Harbors is not going to grow any more, how much would a taxicab license be worth at this new fare? g) How much money would each current taxicab owner be willing to pay to prevent new licenses from being issued? What is the total amount that all taxicab owner together would be willing to pay to prevent any new licenses from ever being issued? The total amount that consumers would be willing to pay to have another taxicab license issued would be (more than, less than, the same as) this amount
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started