DOWNTOWN CABS service that allows people to order by phone. On a regular day, the
demand and the supply for the cabs (measured in average trip equivalents) are given by
Qd= 200 – 2.5P and Qs = 1.5P ,respectively. P is the price of an average trip
On Saturday evening, there is a huge increase in the demand for cabs and the demand function
shifts to Qd= 250 – 2.5P. DOWNTOWN is considering several strategies for Saturday evenings.
(b) Set price on Saturday evening to be the same as the equilibrium price on a regular day. If
the available cabs are assigned randomly to consumers, what will be the consumer
surplus on Saturday Evening?
CS __________________________ (1.5)
(c) Set price on Saturday evening to be the same as the equilibrium price on a regular day. If
the available cabs are assigned to consumers who value the most, what will be the
consumer surplus on Saturday evening?
CS __________________________
