Seattle Transit Ltd. operates a local mass transit system. The transit authority is a state governmental agency. It has an agreement with the state government to provide rides to senior citizens for 66 cents per trip. The government will reimburse Seattle Transit for the “cost” of each trip taken by a senior citizen.
The regular fare is $3.60 per trip. After analyzing its costs, Seattle Transit figured that, with its operating deficit, the full cost of each ride on the transit system is $5.60. Routes, capacity, and operating costs are unaffected by the number of senior citizens on any route.
Required:
b. Which price would Seattle Transit prefer? (Round your answer to 2 decimal places.)
c. Which price would the state government prefer? (Round your answer to 2 decimal places.)
d. If Seattle Transit provides an average of 166,000 trips for senior citizens in a given month, what is the monthly value of the difference between the prices in full capacity?
| Part b | Seattle Transit would prefer a full cost of $5.6 (less $0.66 fee), because this will generate more revenues | |||||||||
| Part c | The state government would prefer a rate of zero that means it will pay nothing to the transit authority | |||||||||
| Part d | Monthly value of the difference between the prices in full capacity | |||||||||
| Full cost for 166,000 trips (166,000*5.6) | 929,600 | |||||||||
| Less : Fare collected (0.66*166,000) | 109,560 | |||||||||
| Difference | 820,040 | |||||||||
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