The accompanying diagram illustrates a taxi driver’s individual
supply curve (assume that each taxi ride is the same distance).
a. Suppose the city sets the price of taxi rides at $4 per ride.
What is this taxi driver’s producer surplus? (Recall that
the area of a triangle is 1⁄2 × the base of the triangle × the
height of the triangle.)
b. Suppose now that the city keeps the price of a taxi ride set
at $4, but it decides to charge taxi drivers a “licensing
fee.” What is the maximum licensing fee the city could
extract from this taxi driver?
c. Suppose that the city allowed the price of taxi rides to
increase to $8 per ride. How much producer surplus does
an individual taxi driver now get? What is the maximum
licensing fee the city could charge this taxi driver?