The international airport in Brezuela, a vibrant city in the country of Bonitas,

Question

The international airport in Brezuela, a vibrant city in the country of Bonitas, auctions an exclusive license every year to a taxi company for the right to serve the airport's passengers. Victor Diego is the owner of Speedy Motors, the taxi company that won this year's license. Currently, with average revenue at $2 per mile, Speedy Motors earns marginal revenue of $1 per mile. Since there are no other taxis available at the airport, Victor feels that they can increase profits by increasing fares. However, his daughter, Lola Diego, a student of economics, disagrees with him and says that a hike in fares will decrease profits.

Which of the following, if true, will strengthen Victor's argument?

A.

The marginal cost incurred by Speedy Motors is currently 90 cents per mile.

B.

All major parts of Brezuela are well connected to the airport through the subway and buses.

C.

Most passengers complain that the average waiting time to get a taxi at the airport is too high.

D.

Speedy Motors recently reached an out-of-court settlement with a passenger who was injured in an accident involving one of its taxis.

E.

The taxi fares set by Speedy Motors have to be approved by airport authorities.

Explanation / Answer

(C) Most passengers complain that the average waiting time to get a taxi at airport is too high. Because point c, if true, clearly states the condition of excess demand. Hence a slight increase in fare will result in increase in revenue.

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