Question

The current toll for the use of a certain toll road is $1.50. A study conducted by

the state highway department determined that with a toll of p dollars, q cars will

use the road each day, where q = 60,000e^-0.5p

1. Find an expression for the Elasticity of Demand, E(p)
2. Is the demand Elastic or Inelastic at the current toll price?   
3. If the state increases the toll slightly, will the revenue increase of decrease?

4. Should they consider raising the toll to any more than $2? Why or why not?

                                                                                                                        

Answer 1

we have

the elasticity of the demand is,

......................1)

put p = 1.5

here E < 1,

hence the demand is inelastic ...................2)

an increase in toll increase revenue. ...............3)

they raising the toll to any more than $2 because they increases in toll, increases in revenue.