Question

Suppose the Innovative Cab Company announced that in the future its rates within the downtown area...

Suppose the Innovative Cab Company announced that in the future its rates within the downtown area of Vancouver would be half price on all sunny days. Is this pricing decision related to the firm's cost of production? Is it related to the opportunity costs of cab users?

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Answer #1

The decision to charge half price on all sunny days by the Innovative Cab Company is related to the opportunity costs. The opportunity cost for reaching back home sooner is much lower on sunny days in comparison to the rainy days. The reason is that the cab drivers can reach their goal amount for a day more quickly when it’s raining as the cabs are likely to be full most of the time. During rainy days demand for cabs increases as people who walk short distances in sunny days, may also be trying to book a cab during rainy days. However during sunny days’ people have options for other mode of transport thus makes it difficult for cab drivers to find customers and achieve their targeted amount for the day, resulting them to stretch their working hours to reach their target amount for the day.

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