Question

39) If VTA increases the price of bus tickets by 15%; and as the result of the price increase the ticket sales decrease by 30%; VTA is: Group of answer choices

A) losing money due to the price increase of the bus tickets

B) earning more money due to the price increase of the bus tickets

C) VTA’s earning is not impacted

D) none of the above 39

(Pt.2) In the case of question number 39, the price elasticity of VTA’s bus tickets is: Group of answer choices

A) inelastic

B) elastic

C) unit elastic

D) Perfectly inelastic

Answer 1

Lets Suppose that intially Price and Quantity of tickets sold be:

Price = P

Ticket Sales = Q

Revenue that VTA makes = PQ

Now Price is inceased by 15%

New Price = P(1 + 0.15) = 1.15P

Due to increased Price the ticket sales declined by 30%

New Ticket Sales = Q(1-0.30) = 0.70Q

New Revenue for the VTC = 1.15P x 0.70 Q = 0.805 PQ

Now to answer the Questions:

Q1:

A1:

Option A is the Correct answer

VTA is losing money due to price increase of the bus tickets

Q2:

A2:

Price Elasticity = %Change in Quantity / %Change in Price

Here,

Elasticity = -30%/15% = -2

Hence Price elasticity of VTA bus ticket is elastic

Option B