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Chapter 7: Q.38 (page 185)

Do you think that the taxicab industry in large cities would be subject to significant economies of scale? Why or why not?

Short Answer

Expert verified

If there are more taxis with reliable drivers, the taxicab sector in large cities can benefit from economies of scale.

Step by step solution

01

Step 1. Introduction

Economies of scale: When a corporation expands its operations owing to size, output, or other factors, it gains a cost advantage.

02

Step 2. Explanation

Normally, private firms run the taxicab industry. Large cities require more cabs to cover more ground, hence there should be more of them. Taxis should be well-maintained and driven by drivers who are familiar with the area and language. Commuters should also enjoy a hassle-free, safe, and less expensive ride. In the long run, this will enable them earn profits and benefit from economies of scale.

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Most popular questions from this chapter

A small company that shovels sidewalks and driveways has 100 homes signed up for its services this winter. It can use various combinations of capital and labor: intensive labor with hand shovels, less labor with snow blowers, and still less labor with a pickup truck that has a snowplow on front. To summarize, the method choices are: Method 1: 50 units of labor, 10 units of capital Method 2: 20 units of labor, 40 units of capital Method 3: 10 units of labor, 70 units of capital If hiring labor for the winter costs \(100/unit and a unit of capital costs \)400, what is the best production method? What method should the company use if the cost of labor rises to $200/unit?

How would an improvement in technology, like the high-efficiency gas turbines or Pirelli tire plant, affect the long-run average cost curve of a firm? Can you draw the old curve and the new one on the same axes? How might such an improvement affect other firms in the industry?

What are diminishing marginal returns as they relate to costs?

Average cost curves (except for average fixed cost) tend to be U-shaped, decreasing and then increasing. Marginal cost curves have the same shape, though this may be harder to see since most of the marginal cost curve is increasing. Why do you think that average and marginal cost curves have the same general shape?

Return to Table 7.2. In the top half of the table, at what point does diminishing marginal productivity kick in? What about in the bottom half of the table? How do you explain this?
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