Question

You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand for the first few months after a price change is about −0.3. Select the statement that best describes the results of raising the fare in the short run.

Total revenue rises immediately after the fare increase, since demand over the immediate period is price inelastic.

Total revenue falls, since demand changes and becomes price inelastic.

Total revenue will rise incrementally as the demand fluctuates and price moves back and forth between being elastic and inelastic.

Answer 1

"A"

Total revenue rises immediately after the fare increase, since demand over the immediate period is price inelastic., as the demand is inelastic increasing the price in the market will lead to increasing the revenue. the answer is "A".