The Acmeville Metropolitan Bus Service currently charges $0.99 for an all-day ti
ID: 1142396 • Letter: T
Question
The Acmeville Metropolitan Bus Service currently charges $0.99 for an all-day ticket, and has an average of 513 riders a day The bus company is not earning a profit, but according to their contract with the city, they cannot cut the number of buses on the road. They must therefore find a way to increase revenues. The bus company is considering increasing the ticket price to $1.1. The marketing department's studies indicate this price increase would reduce usage to 249 riders per day. Calculate the absolute value of the price elasticity of demand for bus tickets using the simple percentage change method. Round your answer to one decimal place. price elasticity of demand- Which of the statements is true? Demand is elastic, so increasing ticket prices will increase revenue. O Demand is inelastic, so decreasing ticket prices will increase revenue. O Demand is inelastic, so increasing ticket prices will increase revenue. Demand is elastic, so decreasing ticket prices will increase revenue.Explanation / Answer
Price elasticity of demand = % change in the quantity / % change in the price.
% change in the quantity = (249 - 513) / (249+513)
= -264 / 762
= - 0.34.
% change in price = (1.1-0.99) / (1.1 +0.99)
= 0.11 / 2.09
= 0.05
Price elasticity = -0.34 / 0.05
= -6.8
The price elasticity is -6.8.
"Demand is elastic, so decreasing ticket prices will increase revenue." The answer is "D".
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