Suppose there are 1,825 taxi medallions in Boston, each valued at about $250,000. Assume the price elasticity of demand for taxi rides is 1; the current price for a taxi ride is $4.75 per mile, and the cost of the ride is $3.00 per mile. How much would a person be willing to pay for a new medallion if the city increased the number of medallions to 2,000? (Hint: The price of the medallions is equal to the total profit from the average total number of miles each medallion will accumulate.)
A. $250,000
B. $160,000
C. $337,000
D. $185,000
Answer: D
Economics
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