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Step 1: Derive the two firms' total cost functions for the case in which there is no tax imposed on the taxi industry. (3
Step 1: Derive the two firms' total cost functions for the case in which there is no tax imposed on the taxi industry. (3 marks) Step 2: Derive the two firms' profit functions for the case in which there is no tax imposed on the taxi industry. (4 marks) Step 3: Derive the two firms' best response functions for the case in which there is no tax imposed on the taxi industry. (6 marks) Step 4: Derive the long-run equilibrium firm quantities, market price, firm profits, and consumer surplus, for the case in which there is no tax imposed on the taxi industry. (8 marks) Step 5: Repeat steps 1 to 4 for the case in which a $2.40 tax per trip is imposed on the taxi industry. (20 marks) Step 6: Derive the long-run equilibrium firm quantities, market price, firm profits, and consumer surplus, for the case in which a $50,000 per day tax is imposed on the taxi industry. (9 marks)
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