Question

Suppose that every year the city of New York auctions off a limited number of medallions that give cab drivers an exclusive right to taxi in the city for one year. After receiving the medallion the cab driver is essentially a monopolist facing an inverse demand function p = 20 - 1.3Q. The total cost function for each cab driver can be summarized as C(Q) = 3Q + F. Where F represents the cost of the medallion or annual fixed cost. What would each taxi medallion have to cost in the long run for this to be a case of monopolistic competition.

Answer 1