Price elasticity of demand and total revenue
Not what you're looking for?
The total operating revenues of a public transportation authority are $100 million while its total operating costs are $120 million. The price of a ride is $1, and the price elasticity of demand for public transportation has been estimated to be -0.4. By law, the public transportation authority must take steps to eliminate its operating deficit.
(a) What pricing policy should the transportation authority adopt? Why?
(b) What price per ride must the public transportation authority charge to eliminate the deficit if it cannot reduce costs?
Purchase this Solution
Solution Summary
Solution discusses the policy which should be adopted to recover the operating expanses. It also calculates the needed change in price to meet the objective.
Solution Preview
(a) What pricing policy should the transportation authority adopt? Why?
It is given that price elasticity of demand is-0.4. Absolute value of price elasticity is less than 1. It is in the inelastic range. In inelastic range, any rise in price will result in increase in total revenue. So, the public transportation authority should increase the price of ride.
(b) What price per ride must the public ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
- "Thank you"
- "Really great step by step solution"
- "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
- "Thanks Again! This is totally a great service!"
- "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.