taxi from hell vladimir lobas published in 1991 11,787 in 91 taxicab medallion vladimir leased from...
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Taxi From Hell
Vladimir Lobas
Pu
bli
shed
in 1
991
11,787 in 91
Taxicab Medallion
Vladimir leased from an elderly woman who invested her savings in three cabs.
The price of leasing a cab was $350 per week.
Vladimir picked up the cab on Sunday night and “owned” it for 7 days.
Vladimir sometimes worked at a Russian radio station rather than driving a cab.
Taxi From Hell
Short-run—the time period over which some inputs are fixed.
For Vladimir,
the short-run is
the fixed input is the
the variable inputs are
Being self-employed, he is not paid an explicit wage. The implicit wage is the opp cost of his time = his wage at the Russian radio station.
7 days.
taxicab.
gasoline and his time.
Taxi From Hell
On Medallion Owners Association website
Three characteristics of competitive markets:1. many buyers and sellers.2. goods sold by firms are very similar.3. firms can freely enter and exit.
One of these characteristics does not describe the market for NYC taxicab rides. Requiring taxis to have a medallion bars the free entry of new taxicabs.
Rationale for Medallion
System
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
0 10 20 30 40 50 60 70 80 90 100 110 120
Draw the ATC curve—easiest to use 30,90 & 100 metered miles
Quantity of Taxicab Rides (# of metered miles per day)
MC
Q TFC AFC ATC30 50 1.67 2.92 90 50 0.56 1.31
50 50 1.00 1.95
100 50 0.50 1.25
Cos
ts (
$ p
er m
ile)
AVC
Leasing the cab: $350 per week or $50 per day
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
0 10 20 30 40 50 60 70 80 90 100 110 120Quantity of Taxicab Rides
(# of metered miles per day)
MC
Q TFC AFC ATC30 50 1.67 2.92 90 50 0.56 1.31
50 50 1.00 1.95
100 50 0.50 1.25
Cos
ts (
$ p
er m
ile)
Draw the ATC curve—easiest to use 30,50, 90 & 100 metered miles
AVC
ATC
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
0 10 20 30 40 50 60 70 80 90 100 110 120Quantity of Taxicab Rides
(# of metered miles per day)
MC
Cos
ts (
$ p
er m
ile)
AVC
ATC
Assuming the market for taxi rides is competitive, Vladimir’s profit maximizing number of taxicab rides at the price of $1 per
P
Qπ max
100
100 metered miles per day
mile is…
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
0 10 20 30 40 50 60 70 80 90 100 110 120Quantity of Taxicab Rides
(# of metered miles per day)
MC
Cos
ts
AVC
ATC
At Qπ max, Vladimir is earning economics _________ (losses, profits) of $_________ per day. Illustrate the area that represents
P
Qπ max
100
the economic profits or losses with lines going in /// direction.
($ p
er m
ile)
1.25
AT
C a
t Q
=10
0
Econ Losses=($.25)(100)
=$25 per day
losses25
Quantity of Taxicab Rides (# of metered miles per day)
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
0 10 20 30 40 50 60 70 80 90 100 110 120
MC
AVC
ATCP2
Q1Q2
P1
S1
D
PTR
Quantity of Taxicab Rides (thousands of metered miles per day)
Normal Long-Run Adjustment Process
S2
Typical taxicab is making econ losses
Some taxicabs exit the market Supply Price
Typical Taxicab makes econ π =0
D1P2=175
Q=11,787
P1=350
S
D2
QTaxicabs
PTaxicabsRental Market for Taxicabs
($ per week)
However, the price of taxicab rides is regulated, being fixed at $1 per metered mile, which prevents the normal adjustment process from occurring. In this case, how does the market respond if the typical taxicab driver is making economic losses?
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
0 10 20 30 40 50 60 70 80 90 100 110 120Quantity of Taxicab Rides
(# of metered miles per day) Qπ max
AVC
ATC
P=
ATC=
Long-Run Adjustment Process in the Regulated Market for Taxi Rides
MC
Cos
ts($
per
mile
)
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
0 10 20 30 40 50 60 70 80 90 100 110 120
AVC
ATC1
ATC2
P now =ATC at Q=100, so econ π=0
P=
Qπ maxQuantity of Taxicab Rides
(# of metered miles per day)
Cos
ts($
per
mile
)Long-Run Adjustment Process in the Regulated Market for Taxi Rides
MC