Rate-of-Return Analysis. New York City licenses taxicabs in two classes: (1) for operation by companies with fleets, and (2) for operation by independent driver-owners who have only one cab. It also fixes the rates that taxis charge. For many years, no new licenses have been issued in either class. In the unofficial market for licenses (medallions), their market value is currently roughly $250,000.
A. Does the $250,000 medallion price indicate that operators of New York taxicabs are earning only normal profits?
B. What factors would determine whether a change in the fare fixed by the city would raise or lower the value of a license?
C. Cab drivers, whether hired by companies or as owners of their own cabs, seem unanimous in opposing any increase in the number of cabs licensed. They argue that an increase in the number of cabs would increase competition for customers, and drive down what they regard as an already unduly low return to drivers. Is their economic analysis correct? Who would benefit and who would lose from an expansion in the number of licenses issued at a nominal fee?

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The Answer of Rate-of-Return Analysis. New York City licenses taxicabs in two classes: (1) for operation by companies with fleets, and (2) for operation by independent driver-owners who have only one cab. It also fixes the rates that taxis charge. For many years, no new licenses have been issued in either class. In the unofficial market for licenses (medallions), their market value is currently roughly $250,000.
A. Does the $250,000 medallion price indicate that operators of New York taxicabs are earning only normal profits?
B. What factors would determine whether a change in the fare fixed by the city would raise or lower the value of a license?
C. Cab drivers, whether hired by companies or as owners of their own cabs, seem unanimous in opposing any increase in the number of cabs licensed. They argue that an increase in the number of cabs would increase competition for customers, and drive down what they regard as an already unduly low return to drivers. Is their economic analysis correct? Who would benefit and who would lose from an expansion in the number of licenses issued at a nominal fee?

Rate-Of-Return Analysis