In 1990, the town of Ham Harbour had a more-or-less free market in taxi services. Any respectable firm could provide taxi services as long as the drivers and cabs satisfied certain safety standards. Let us suppose that the marginal cost per trip of a taxi ride is $18, and that the average taxi has a capacity of 10 trips per day. There are no other costs. Let the demand function for taxi rides be given by D(p) = 2100 – 10p, where demand is measured in rides per day, and price is measured in dollars. Assume that the industry is perfectly competitive. Dort 1.

In 1990, the town of Ham Harbour had a more-or-less free market in taxi services. Any respectable firm could provide taxi services as long as the drivers and cabs satisfied certain safety standards. Let us suppose that the marginal cost per trip of a taxi ride is $18, and that the average taxi has a capacity of 10 trips per day. There are no other costs. Let the demand function for taxi rides be given by D(p) = 2100 – 10p, where demand is measured in rides per day, and price is measured in dollars. Assume that the industry is perfectly competitive. Dort 1.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

In 1990, the town of Ham Harbour had a more-or-less free market in
taxi services. Any respectable firm could provide taxi services as
long as the drivers and cabs satisfied certain safety standards.
Let us suppose that the marginal cost per trip of a taxi ride is $18,
and that the average taxi has a capacity of 10 trips per day. There are
no other costs. Let the demand function for taxi rides be given by
D(p) = 2100 10p, where demand is measured in rides per day,
and price is measured in dollars. Assume that the industry is perfectly
competitive.
Part 1:
a) What is the competitive equilibrium price per ride? (Hint: in
competitive equilibrium, price must be equal to marginal cost.
b) What is the equilibrium number of rides per day?
c) How many taxi cabs will there be in equilibrium?

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