Taxi From Hell Vladimir Lobas Published in ,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

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 ATC Costs ($ per mile) AVC Leasing the cab: $350 per week or $50 per day

Quantity of Taxicab Rides (# of metered miles per day) MC Q TFC AFC ATC Costs ($ per mile) Draw the ATC curve— easiest to use 30,50, 90 & 100 metered miles AVC ATC

Quantity of Taxicab Rides (# of metered miles per day) MC Costs ($ per mile) 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 Q π max metered miles per day mile is…

Quantity of Taxicab Rides (# of metered miles per day) MC Costs AVC ATC At Qπ max, Vladimir is earning economics _________ (losses, profits) of $_________ per day. Illustrate the area that represents P Q π max 100 the economic profits or losses with lines going in /// direction. ($ per mile) 1.25 ATC at Q=100 Econ Losses =($.25)(100) =$25 per day losses 25

Quantity of Taxicab Rides (# of metered miles per day) MC AVC ATC P2P2 Q1Q1 Q2Q2 P1P1 S1S1 D P TR Quantity of Taxicab Rides (thousands of metered miles per day) Normal Long-Run Adjustment Process S2S2 Typical taxicab is making econ losses Some taxicabs exit the market  Supply  Price Typical Taxicab makes econ π =0

D1D1 P 2 =175 Q=11,787 P 1 =350 S D2D2 Q Taxicabs P Taxicabs Rental 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?

Quantity of Taxicab Rides (# of metered miles per day) Q π max AVC ATC P= ATC= Long-Run Adjustment Process in the Regulated Market for Taxi Rides MC Costs ($ per mile)

AVC ATC 1 ATC 2 P now =ATC at Q=100, so econ π=0 P= Q π max Quantity of Taxicab Rides (# of metered miles per day) Costs ($ per mile) Long-Run Adjustment Process in the Regulated Market for Taxi Rides MC