Why might monopolistic competition provide a more realistic

Reference no: EM133261011

Consider again the New York taxi market, where demand is given by Q = 10 - .5P, each taxi's cost is C = 980 + 3Qt, and ACMIN = $10 at 140 trips per week.

Question 1: Suppose that, instead of limiting medallions, the commission charges a license fee to anyone wishing to drive a cab. With an average price of P = $15, what is the maximum fee the commission could charge? How many taxis would serve the market?

Question 2: Suppose the commission seeks to set the average price P to maximize total profit in the taxi industry. (It plans to set a license fee to tax all this profit away for itself.) Find the profit-maximizing price, number of trips, and number of taxis. How much profit does the industry earn? (Hint: Solve by applying MR = MC. In finding MC, think about the extra cost of adding fully occupied taxis and express this on a cost-per-trip basis.)

Question 3: Now the city attempts to introduce competition into the taxi market. Instead of being regulated, fares will be determined by market conditions. The city will allow completely free entry into the taxi market. In a perfectly competitive taxi market, what price will prevail? How many trips will be delivered by how many taxis?

Question 4: Why might monopolistic competition provide a more realistic description of the free market in part (c)? In the resulting zero-profit equilibrium, suppose average price falls only to $12.80. At this price, how many trips would a typical taxi make per week? (Are taxis underutilized?) How many taxis would operate?

Reference no: EM133261011

Questions Cloud

Did african americans serving in the military during world : ECONOMICS 24 San Francisco State University Did African Americans serving in the military during World War II in a good way affect the civil rights movement?

How would medicaid and va prices change : MGMT MISC University Of Georgia Suppose a law was enacted that required drug manufacturers to give state Medicaid agencies the same price they negotiated

How much annuity can a person get annually from the bank : ECONOMICS 508 CUNY New York City College of Technology how much annuity can a person get annually from the bank every year for 5 years starting 1 year after

Calculate the inverse demand, write the profit maximizing : ECONOMICS 24223A University of Notre Dame Calculate the inverse demand, write the profit maximizing condition, compute the profit maximizing price

Why might monopolistic competition provide a more realistic : ECON 210 Delta State University Why might monopolistic competition provide a more realistic description of the free market in part (c)? In the resulting zero

Why are nation-states sometimes willing to compromise : ECON 101 New Jersey City University Why are nation-states sometimes willing to compromise their sovereignty in order to gain or maintain membership

How do you think your company could best compete against : ECONOMICS 202 Seattle Central College f you were a competitor and you determined that a rival company was using this strategy, how do you think your company

What kind of organizational behavior study would design : If you were a manager (or are!), what kind of Organizational Behavior study would you design to find out what's working.

What prompted the current emphasis on intercollegiate teams : NURS 700 Fresno Pacific University Why might it be difficult to get health professionals to reach a consensus on a policy agenda and What prompted the current

User Account

All Pages