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.