Problem
1. Explain why a firm that incurs losses would continue to produce rather than shut down and leave the industry.
2. In a perfectly competitive market structure, all firms earn zero economic profit in the long run. So, why do firms enter an industry under such conditions?
3. In some major US and European cities, it is very difficult to find a taxi because city authorities limit the number of taxi permits (known as medallions, in New York City). In 2014, the cost of a taxi medallion was near a $1 million, but now it is about $80,000 (from a low of $25,000). Explain the economics of taxi permits (costs and benefits of participants). Why would NYC authorities limit such permits and not simply issue more? Why did the cost of a medallion fall so sharply?