Suppose that there are 95 taxicabs and that the City of Calgary decides that it is time to enter the Industrial
Age and provide its citizens with an alternative mode of transportation: light rail transit (LRT). The new demand curve for taxi rides is D(p) = 1000 − 20p + 1000 f, where f is the fare per LRT ride, measured in dollars. Suppose that the city council sets f = $1.00.
(a) Find the short-run competitive equilibrium: the price per ride, number of rides per day, and the profit per cab per day. Is the taxicab market in long-run equilibrium?
(b) Suppose the City of Calgary increases the LRT fare to $2.00. What are the new short-run and long-run equilibria?
(c) Suppose the City of Calgary decreases the LRT fare to $0.50. What are the new short-run and long-run equilibria?