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Question

The city of Windhoek has a more or less free market in taxi services. Suppose that the

marginal cost per trip of a taxi ride is constant, MC = N$5, and that each taxi has a

capacity of 20 trips per day. Let the demand function for taxi rides be given by: D = 1200

- 20P, where demand is measured in rides per day. Assume that the industry is perfectly

competitive.

(i) What is the competitive equilibrium price?          (5)

(ii) What is the equilibrium number of rides per day and how many taxicabs will be in

the equilibrium?                 (5)

(iii) Provide a clear argument explaining why under a monopoly MR(y) < AR(y) for y

>0, assuming the same price must be charged.         (10)

Step-by-step answer

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Subject: Business, Economics

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