1. Suppose that the market for taxi services in a city is perfectly competitive, but that in order to enter the market and provide taxi services, you need to buy a $100,000 license (a "medallion").
2. Consider a situation where the demand for taxi services in the city has increased, so that existing taxi firms are now earning $200,000 of economic profit. Briefly describe the transition to long-run equilibrium in this market: what will happen to the price of taxi services, the number of firms, and the profit earned by each firm.Be sure to think carefully about costs, and the calculation a firm makes when it enters this industry.
3. 2
4. 3)Consider a monopoly with the cost function C = 49 + q . The demand curve for its
5. good is QD= 36 - 2P. Your job is to calculate and graph the monopoly's profit maximizing output by setting MR=MC.
6. a)First, let's deal with the cost side. Calculate the MC, ATC, and AVC functions, and find the coordinates of the minimum of the ATC curve.
7. b)Next, calculate the marginal revenue function. Start out by calculating total revenue as a function of how much the monopoly produces.TR=PQ. Use the demand curve to substitute a function of Q for P in this expression. Then take the derivative with respect to Q to calculate MR.
8. c)Calculate the profit maximizing level of production for the monopoly. What single price will the monopoly charge to sell this level of output?
9. d)Calculate the monopoly's profits using the = (P-ATC)q method.
10. e)Last, draw the graph. Show MC, ATC, AVC, the demand curve, and the MR curve. Show graphically how the monopoly determines its level of output, and what price it will charge. Draw the profit rectangle.