Answer Happy

22.20 points) The government is considering price and entry regulations for the taxicab industry. For this question, we will assume that the taxicab industry is perfectly com- petitive and that the industry is initially in a long-run equilibrium. Each taxi firm has a cost curve given by C(q) =q²+2q+81, which implies a marginal cost of MC(q) = 2q+2. The demand for taxi rides is given by the equation P = 110-Q. (a) Write an equation for a firm's average cost curve. (b) Given that the industry is in a long-run equilibrium, how many taxi rides does each firm produce? What is the long-run equilibrium price?
(c) How many taxi rides does the industry produce? How many firms are in the taxi industry? (d) Suppose that the government regulates the price to P = $30 and prohibits en- try. How many taxi rides does the industry provide? Assuming that firms split production evenly, how many taxi rides does each firm provide?
Instead of regulating price and entry, the government decides to implement a medal- lion system. Under the medallion system, every firm that wants to operate has to pay a one-time fee of $19 to buy a medallion. Once a firm has a medallion, they can provide as many taxi rides as they wish. (e) Under the medallion system, what are a taxi firm's new cost and average cost curves? (f) Under the medallion system, how many taxi rides does each firm provide in a long- run competitive equilibrium? What is the equilibrium price? Hint: marginal costs do not change.
(g) If the government cares about long-run consumer surplus only, would it implement the medallion system or the price and entry regulation from part (d)? Explain your answer. Hint: you do not need to find the CS. Because demand did not change, you only need to compare the prices.