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gladu [14]
3 years ago
14

The Acmeville Metropolitan Bus Service currently charges $0.99$0.99 for an all-day ticket, and has an average of 433433 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 $ 1.11.1 . The marketing department's studies indicate this price increase would reduce usage to 169169 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.
Business
1 answer:
Illusion [34]3 years ago
5 0

Answer:

PED = 5.49

Explanation:

current price = $0.99 per ticket

average daily tickets sold = 433

average daily revenue = $428.67

if the company increases the price to $1.10, then average daily tickets will be only 169. Average daily revenue will drop to $185.90

price elasticity of demand (PED) = % change in quantity demanded / % change in price

PED = [(169 - 433)/433] / [(1.1 - 0.99)/0.99] = -0.6097 / 0.1111 = -5.49 or |5.49| in absolute terms

the price of tickets is very elastic, meaning that a 1% change in price will result in a much higher proportional change in quantity demanded

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