A taxi driver picks up passengers at a city airport. he\'s a price taker and pro

Question

A taxi driver picks up passengers at a city airport. he's a price taker and profit-maximizer. The regulated price for rides to downtown from the airport is $40. His costs are given by the following function:

TC = 100 + 20q + 0.1q2

Q being the quantity he produces

1) How many taxis will he provide? What are the profits?

2) Assume the city imposes a new requirement for a $100 per year taxi license fee for all drivers. Assume the regulated price remains fixed at $40. how many rides will the driver provide now and what are his profits?

3) Assume the the city requires all drivers to pay a $10 fee for each ride. With the price remaining fixed at 40, how many rides will he provide and what will the profits be?

Explanation / Answer

1. The resulting formula for profit would be: 40q - (100 + 20q + 0.1q^2);The maximum profit with this formula would be q = 100, at $900 profit. 2. The only difference in this model is that the fixed cost increases by $100; the number of taxis to provide per year for maximum profit would still be 100, but the profit will drop to $800. 3. In this model, the formula would be altered as follows: 40q - (100 + 20q + 10q + 0.1q^2) 40q - (100 + 30q + 0.1q^2) and 30q - (100 + 30q + 0.1q^2) also mean the same thing. The maximum-profit number of rides in this case would be q = 50, with only a $50 profit. Hope this helps!

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