Question

The Transit Commission’s single-fare price is $0.60. On a typical day, approximately 240,000 people take transit and pay the single-fare price. To reflect higher costs, single fare prices will be increased, but surveys have shown that every 5¢ increase in fare will reduce rider-ship by 5000 riders daily. Assume a linear demand function - What is the equation of the demand function? - What single-fare price and the price elasticity of demand that will maximize income for the commission based on single fares? - What would be the patronage if the TC offers free rides? - At what price would the ridership drop to zero?

Answer 1