1. Skyscraper City has a subway system, for which a one-way fare is $1.50. There is pressure on the mayor to reduce the fare by one-third, to $1.00. The mayor is dismayed, thinking that this will mean Skyscraper City is losing one-third of its revenue from sales of subway tickets. The mayor

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Keith LeannonLv2

2 Oct 2018

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1. Your consultant service, Brainiac Consulting, has been hired by new Mayor Michael Fougere of the City of Regina to examine the City of Regina Transit (bus) service’s pricing system for monthly bus passes. Mayor Fougere wants to know if the current pricing scheme employed by the Transit system for monthly passes is in the public interest. If not, he wants recommendations on what price to charge for the monthly passes. The Mayor had the Manager of City of Regina Transit, Louis P. Zerr, send the following transit data to you.

The City of Regina Transit is a monopoly bus service that has two different types of riders:

1. Senior citizens – these are people that are aged 65 or greater. On average, 1,000 senior citizens purchased monthly passes each month.

2. Non-senior citizens – these are people less than the age of 65. On average, 3,600 non-senior citizens purchased monthly passes each month.

Zerr also indicates that City of Regina Transit’s marginal cost is constant at $10 per passenger with a monthly pass and the City of Regina Transit has no fixed costs.

Despite the fact that he thought seniors were less willing to pay for monthly passes, Zerr priced monthly passes at $20 per pass for both seniors and non-seniors because he felt that it was too much bother to price them differently. He justified this policy by arguing that the City of Regina Transit made a profit from the monthly bus passes given the marginal costs noted above.

a) Given the above information, confirm or deny Zerr’s claim that the monthly bus passes are profitable for the City of Regina Transit system by calculating the total revenue, total cost and profit (or loss).

blushprairie-dog925

FLY-BY AIRLINES HAS A ROUND TRIP FLIGHT BETWEEN MINNEAPOLIS AND CHICAGO. THE PLANE FOR THE FLIGHT HOLDS OVER 200 PASSENGERS.

Currently, the fare is $100 and they fly 200 passengers per day. The

Total Revenue (TR) of the flight equals ____________________________.

If they increase the fare by 10% to $110, only 190 passengers buy tickets. The TR becomes $____________. Because the TR ___________, we can say that demand for the flight is _____________________________.

On the other hand, if the $10 increase in fare caused a decline to only 150 passengers, the TR would become $__________________________, and we would say that the demand was ___________________________.

The third possibility is that the fare increase would result in sales of 182 tickets. In this case, the TR would be $20,020

magentacaribou480

The city government is losing millions of dollars on the mass transit system (buses and subways). The government proposes to increase the fare of a ticket by 20% to raise revenue and has asked your advice.

a. You know that the price elasticity of demand for mass transit in the city is approximately equal to 0.75. What do you think of the proposal to increase the fare to raise revenue for the city? Be as specific as possible.

b. The cross-price elascity of demand bewteen mass transit price increase have on the demand for taxi rides?

c. the income elasticty of demand for mass transit is -0.05. What does this tell you about mass transit? Will this affect your recommendatin about the price increase?