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Unformatted text preview: cabs fulﬁlls the demand for rides at that price. Competition drives down the price to the minimum point on the average cost curve (this part is the key to the answer to this question because it’s long run). This can be found by setting AC=MC: 100 q + 0 . 01 q = 0 . 02 q ⇒ q = 100 Plugging this value back into the average cost curve, we ﬁnd that the equilibrium price must be: p = 100 100 + 0 . 01(100) = 2 At this price, the total demand for cab rides each day will be: D (2) = 10 , 000100(2) = 9 , 800 Therefore, the equilibrium number of cabs will be: 9 , 800 100 = 98. 1...
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This note was uploaded on 04/03/2012 for the course ECONOMICS V31.0010.0 taught by Professor Gemici during the Fall '10 term at NYU.
 Fall '10
 Gemici

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