If we assume that a given bus market is in perfect competition which charges a flat fare of $1 and if the formula for the total demand in the market is given by qd=250-60p where qd is the quantity demand at a given price. if we further assume constant returns to scale.
(A) What is the total market demand at the $1 flat fare?
(B) If the market is shared by 4 firms what is the number of passengers carried by each company
(C) If the cost per kilometre is $1.60, average utilisation 20 passengers per vehicle kilometre and average trip distance 10 kilometre
1. What is the level of bus kilometres required to service this market
2. What profits are being made
3. What type of profit is this normal or abnormal
4. What is the cost per passenger carried(as opposed to the cost per vehicle kilometre)
(D) As this perfect competition, new firms may enter the market and compete this profits away . What price therefore will ensure that only normal profits are made
(E) The answer to part D should be the same as answer to C why