Question:

. The market for taxi services in a Midwestern town is monopolized by rm 1. Currently1 any taxi services rm must purchase a $4,l} \"medallion\" orn the city in order to offer its services. A potential entrant {rm 2} is considering entering the market. Since entry would adversely acct than 1'5 profits, the owner of rm 1 is planning to call her {end (the mayor) to request that the city change the medallion fee by 5F 'iousand. The extensive form representation of the relevant issues is summarized in the accompanying graph (all payoffs are in thousands of dollars and include the current medallion fee of $40,{l}. Notice that when F 3: it, the medallion fee is increased and prots decline; when F s: t}, the fee is reduced and prots increase. {soc F. 2m] F] (to!) F. Ill (soc. ran} {700+ 0} c. What are rm 1's prots if it does not call to change the fee {that is, if it opts for a strategy of maintaining the status quo}? b. How much will rm I earn if it convinces the mayor to decrease the medallion fee by $4,ilil {F = $4ll) so that the medallion fee is entirely eliminated? c. How much will rm I earn if it convinces the mayor to increase the medallion fee by $3W,[l (F = $300]? of. Determine the change in the medallion fee that maximizes rm 1's prots. 2. Do you think it will be politically feasible for the manager of rm 1 to implement the change in {(1}? Explain