Reference no: EM131906143

1) The city that has a number of hot dog food trucks operating throughout the downtown area. Suppose that each food truck has a marginal cost of $1.50 per meal sold and no fixed cost. Suppose the maximum that any food truck can sell is always 100 meals per day.

(a) If the price of a meal is $2, how many meals does each vendor want to sell?

(b) If the industry is perfectly competitive, will the price remain at $2 for a hot dog? If not,what will the price be?

(c) If each vendor sells exactly 100 meals a day for $2 each, and the demand for meals from food trucks in the city is Q = 4400-1200P, how many food trucks are there? Is this the same number of food trucks that will exist in the long run? If yes, explain why. If not, how many would there be?

(d) Suppose the city decides to regulate food trucks by issuing permits. If the city issues only 20 permits and if food truck continues to sell 100 meals a day, what price will a meal sell for?

(e) Suppose the city decides to sell the permits and we are still in the short run equilibrium where the price is $2. What is the highest price a vendor would pay for a permit?