The Acmeville Metropolitan Bus Service currently charges $0.99 for an all-day ticket, and is used by an average of 623 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 $1.21. The marketing department\'s studies indicate this price increase would reduce usage to 473 riders per day. Calculate the price elasticity of demand using the midpoint method for bus tickets to determine if the bus company should increase price or decrease price to increase revenues. Enter your answer as an absolute value and round it to two places after the decimal. Number Price elasticity of demand is 1.08 O O O O Demand is inelastic, so increasing ticket prices will increase revenue. Demand is elastic, so increasing ticket prices will increase revenue. Demand is inelastic, so decreasing ticket prices will increase revenue Demand is elastic, so decreasing ticket prices will increase revenue.
Answer
price elasticity of demand=(change in quantity demanded/average quantity)/(change in price/average price)
change in quantity demanded=473-623=
average quantity demanded=(473+623)/2
change in price=(1.21-.99)=.22
average price=(1.21+.99)/2=1.1
elasticity=(-150/548)/(0.22/1.1)
=-1.36861314
=1.37
the elasticity is 1.37
the demand is elasticity because the value is above one in absolute value
It means increase in price will decrease demand proportionately more than price change, so the revenue will decrease because of increase in price
the revenue at $.99
=.99*623=616.77
revenue at $1.21
=1.21*473
=572.33
it measures the increase in price decreases revenue.
to increase revenue price should be decreased because the demand is elastic.
Option fourth
Demand is elastic, so decreasing ticket prices will increase revenue
Homework Sourse
