Second best pricing, Assume the MTA’s production cost curve

Second best pricing

Assignment Help Business Economics

Reference no: EM13984009

Second Best Pricing

Assume the MTA’s production cost curve is given by C=1,200,000,000 + 3.5q where q denotes the number of subway trips. From past fare changes we know that a 20% drop in fares will increase the number of transit trips by 4%. In contrast, the fare drop has lowered the number of automobile trips by only 0.2%. Currently, the ratio automobile trips to transit trips is 20. Current the private cost of the average automobile is $1.20. However, it’s overall social marginal cost is $3.20. Calculate the first best transit fare per trip.

a) Calculate the first-best transit fare per trip.

b) Calculate the second-best transit fare per trip.

Reference no: EM13984009

Questions Cloud

What are the costs of the basket : The following table shows the prices and quantities consumed in the country known as the United States. Suppose the base year is 1996. The fixed basket is determined by 1996 quantities. 1996 is also the base year. What are the costs of the basket in ..

Financial markets is that financial intermediaries : One of the basic facts of financial markets is that financial intermediaries, particularly banks, are the most important source of external funds used to finance business. Explain the reasons from what we learned in Chapter 8 from Money, Banking and ..

The daily demand for a product-standard deviation : The daily demand for a product is 17 units with a standard deviation of 2.6 units. The review period is 30 days with a lead time of 14 days. Management has a set policy of satisfying 95% of demand from items in stock. At the beginning of the review p..

Explain graphically how isoquant-isocost analysis : Explain graphically how isoquant-isocost analysis can be used to derive a long-run labor demand curve. Distinguish between the substitution and output effects. How might a wage differential between two regions be reduced via movements of capital to t..

Second best pricing : Assume the MTA’s production cost curve is given by C=1,200,000,000 + 3.5q where q denotes the number of subway trips. From past fare changes we know that a 20% drop in fares will increase the number of transit trips by 4%. Calculate the first-best tr..

Opportunity cost-replacement cost and historical cost : The foregone value associated with the correct rather than the next best use of a given asset is called" a.) Opportunity cost b.) replacement cost c.) historical cost d.) currect cost What is the correct answer

Suppose the price level and value : Suppose the price level and value of the U.S. dollar in year one are 1 and $1, respectively. If the price level rises to 1.20 in year two, what is the new value of the dollar?

Most members of labor unions work in the public sector : As we noted in class, most members of labor unions work in the public sector, industries that are regulated, or industries in which production is concentrated into a few firms. “Right to work” laws in several states (mostly in the South and the Rocky..

Explain how the product market effect may operate : Assume in the retail-trade industry, unionized workers earn 19.0% more than non-unionized workers do. Briefly explain how the “product market” effect may operate in this industry. If the product market effect were large, would that suggest that the 1..

User Account

All Pages