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Derive the price of a medallion

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Reference no: EM131270100

Suppose a taxicab company is expected to earn annual above-normal profits of $10,000. Assume the interest rate is 5%.

a. Derive the price of a medallion if entry regulation is expected to continue forever.

b. Suppose a new technology, let's call it Uber, will be available in two years. Uber can provide the same services as the taxi without the need for a medallion (can avoid the entry regulation). Derive the change in price of a medallion in response to this new technology.

Reference no: EM131270100

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