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.a. Total revenue falls, since demand changes and becomes price inelastic. b. Total revenue will rise incrementally as the demand fuctuates and price moves back and forth between being elastic and inelastic. c. Total revenue rises immedately after the fare increase, since demand over the immediate period is price Inelastic.

Answer 1

Answer:

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

Explanation:

Elasticity in the price demand measures the porcentage in the change of the quantity demanded as a response to a change in the price. If the elasticity is more than 0 but less than 1 it means that the price demand is inelastic. So when the price is rised the quantity demand will decrease in a minor porcentage than the rise in the price so it will represent a bigger revenue.