Question

The total operating revenues of a public transportation authority are $100 million while its total operating...

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 elasticty 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?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Total revenue = $100 million; price of a ride = $1.

Total number of rides = 100 million

Price elasticity = % change in quantity / % change in price.

Price elasticity of demand is inelastic. Increase in price will lead to increase in total revenue.

(a) The price elasticity of demand is -0.4, which is price inelastic. So, the transportation company should think of a hike in the price of per ride in order to eliminate the deficit.

(b) -0.4 = % change in quantity / % change in price.

Percentage change in quantity (rides) = -0.4 x 0.5 (assuming a 50% hike in price)

Percentage change in quantity (rides) = -0.2 or 20% less of demand

Total number of rides = 80,000 rides

New price = $1.50 per ride.

New total revenue = $1.50 x 80,000 = $120,000.

Hence, the public transportation company must charge $1.50 per ride to eliminate the deficit between revenue and costs.

*****

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A privately held company has an estimated value of equity equal to $100 million. The founders...
A privately held company has an estimated value of equity equal to $100 million. The founders own 10 million shares. If the company goes public and sells 1 million shares with no underwriting costs, how much should the per share offer price be? If instead the underwriting spread is 7%, what should the offer price be? A company is planning an IPO. Its underwriters have said the stock will sell at $50 per share. The underwriters will charge a 7%...
Quick Company's segments its company into four distinct divisions. The net revenues, operating profit, and total...
Quick Company's segments its company into four distinct divisions. The net revenues, operating profit, and total assets for these divisions are disclosed in the footnotes to Quick Company?'s consolidated financial statements and the following presented? information: Net Revenue Operating Profit 2017 2016 2015 2017 2016 2015 Home furnishings $10,250 $9,150 $8,750 $2,460 $2,185 $1,635 office furniture 8,750 7,850 7,550 1,575 1,395 1,335 store displays 12,750 11,550 11,050 1,785 1,645 1,585 health care furnishings 1,500 1,350 1,250 495 470 450 Total...
Skiable Acres operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing...
Skiable Acres operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. Investors would like to earn a 10% return on investment on the​ company's $260,900,000 of assets. Skiable Acres projects fixed costs to be $30,000,000 for the ski season. The resort serves about 710,000 skiers and snowboarders each season. Variable costs are about $8 per guest. Last​ year, due to its favorable​ reputation, Skiable Acres was a​ price-setter and was...
Industry Analysis Scenario In the island nation of Autarka, the government holds a monopoly over the...
Industry Analysis Scenario In the island nation of Autarka, the government holds a monopoly over the provision of airfreight services. Both the general public and business groups regularly complain about high prices and poor quality of service from the government owned monopoly, Autarka Airfreight Services (AAS). In response to these complaints, the national government commissioned the competi- tion authority to recommend steps for improving the efficiency of the airfreight market. The commission made two recommendations: The airfreight services market should...
11-4. Fruity Fruits Ltd. currently sells $25 million annually of apple juice in 1 litre containers...
11-4. Fruity Fruits Ltd. currently sells $25 million annually of apple juice in 1 litre containers and $10 million of individually packaged dried fruit snacks. The company wants to introduce a 230 mL single-serving cranberry–apple juice product next year. A $200,000 feasibility study just completed estimated yearly sales of $12 million for the new juice. The study also forecast that sales of the company's existing apple juice would fall by $2 million as some existing customers would switch to the...
Question: Current situation Patterson has remained profitable, but its return on investment has been declining. The...
Question: Current situation Patterson has remained profitable, but its return on investment has been declining. The number of new products introduced has fallen as has the number of improvements to existing products. Whereas the firm once manufactured over two hundred products classified into six product categories, the firm now manufactures less than one hundred products in four categories. Only twelve of the products have current annual sales volumes exceeding $1 million. Further, many of the firm's once unique products now...
4. A company that makes optical computer input devices has calculated their revenue and costs as...
4. A company that makes optical computer input devices has calculated their revenue and costs as follows for the most recent fiscal period: Sales ​$522 000 Costs: ​Fixed Costs​ $145 000 ​Variable Costs ​208 800 Total Costs ​353 800 Net Income ​$168 200 ​What is the break-even point in sales dollars? 5. A company that makes environmental measuring devices has calculated their revenue and costs as follows for the most recent fiscal period: Sales ​$750 000 Costs: ​Fixed Costs​ $200...
Pfizer was established in 1849 in Brooklyn, New York by cousins Charles Pfizer and Charles Erhart...
Pfizer was established in 1849 in Brooklyn, New York by cousins Charles Pfizer and Charles Erhart with a loan of $2,500 from Pfizer’s father.2 Today, 167 years later, Pfizer Inc. has international revenues of $49 billion, which makes it the second-largest pharmaceutical manufacturer in the world.3 Despite Pfizer’s success, the company has faced many challenges over the last few decades. The pharmaceutical industry is heavily influenced by legal, political, and technological forces, and all indications are that the industry will...
Argentina and Ecuador: Understanding the Currency Crisis While fiscal policy is never far from the mind...
Argentina and Ecuador: Understanding the Currency Crisis While fiscal policy is never far from the mind of your average Argentine, who remembers the tough times and hyperinflation of the 1980s, the events of 2001 and 2002 have brought fiscal policy back to the forefront of public concern. Though the early 1990s may have been characterized by financial optimism, Argentina has been in a recession since Brazil's 1998 monetary crisis sent shockwaves across the regional and global markets. In early 2002,...
Background ABC Retailers Inc. (ABC or the “Company”) is a U.S. public company that files quarterly...
Background ABC Retailers Inc. (ABC or the “Company”) is a U.S. public company that files quarterly and annual reports with the Securities and Exchange Commission (SEC). ABC is a leading retail chain operating more than 100 department stores across the continental United States. ABC department stores offer customers a variety of nationally advertised products, including clothing, shoes, jewelry, and other accessories. The Company’s supply chain of products is managed through a single warehouse and distribution facility located in Kansas City,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT