Question

6. Assume that the cab market in Warsaw can be treated as perfectly competitive (there are no licenses that limit the entry). The marginal cost of one drive is 8 PLN. A cab is able to complete up to 20 drives per day. The daily demand for cab services in Warsaw is given by D(p) = 1200 -20 p. a. What is the equilibrium price of one drive? How many drives will be executed in the equilibrium in the entire city? What will the number of cabs be then? b. Because of an economic summit, which lasts for ten days, the daily demand for cab services increases. The new demand is given by D(p) = 1340-20 p. Assuming that in these ten days, it is not possible for new firms (cabs) to enter the market and, thus, the number of cabs remains at the level as calculated in a., what is the new equilibrium price, the number of drives per day and the profit per cab? c. Assuming that the change in demand described in b. is permanent, what is the equilibrium price, the number of drives per day in the equilibrium and the number of cabs that operate in Warsaw? Explain the difference between the current equilibrium and the equilibrium calculated in b..

Answer 1

Anst MC= 8 Dlp) = 1200- 20P a) in perfect competition equilibrium occurs where ML = P. :. ML =P = 8 on D(P) = 1200-201 & 1200 - 2018) - 1200 - 160 D(P) = 1040 sine each driver can 20 drums complete Total cabs Average = No. of driuett No of drink= touo 52 - 52 No. of drius b) DLP)= 1340 - 20 p d. 1040 = 1340720P = 200 - 200 = T10 =p No of drius = 1040 а) = 52 every thing to UNO Total & PX Q a profit = 10 x 1040 = 10yoo

Total Profit - TR - TC = 1x0 - 88 - Тох Точ із - gx Toyo = 10400 - 8320 2010 profit per drive = 2080 52 c) DCP) = 1340 - 30 P Мt= 8 - DLp) = 1340 - 2018) = 1340-160 DIP) = 1190 No. of drins perday = 1180 lo = 59 drums