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Teal Taxi Company Has a Regulated Taxi Monopoly in Colortown

Question 1

Multiple Choice

Teal Taxi Company has a regulated taxi monopoly in Colortown.It faces a demand for rides given by P = 3 - 0.02Q. It has total costs (exclusive of the required rate of return on its invested capital) of TC = -110 + 0.1Q + 0.01Q2.If the commission that regulates Teal Taxi determines that $100 is sufficient to compensate equity holders for their invested capital,what are the regulated price and output?


A) P = 0, Q = 150.
B) P = .5, Q = 125.
C) P = 1, Q = 100.
D) P = 1.5, Q = 75.
E) P = 2, Q = 50.

Correct Answer:

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