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Suppose you are the manager of the State Transport Company (STC) and your finance officer has just told you that the company is making losses. To reverse the losses been made by STC, you decide to cut transport services to certain destinations but your board of directors do not want you to cut services, which means that you cannot cut costs. Your only hope is to increase revenue. You consult the economist on your staff who has researched studies on public transportation elasticities and she reports that the estimated price elasticity of demand for the first few months after a price change is about -0.3, but that after several years, it will be about -1.5. (a) Explain why the estimated values for price elasticity of demand differ. (b) Calculate what will happen to ridership and revenue over the next few months if you decide to raise fares by 5%. (c) Compute what will happen to ridership and revenue over the next few years if you decide to raise fares by 5%. (d) What happens to total revenue now and after several years if you choose to raise fares?

Suppose you are the manager of the State Transport Company (STC) and your finance officer has just told you that the company is making losses. To reverse the losses been made by STC, you decide to cut transport services to certain destinations but your board of directors do not want you to cut services, which means that you cannot cut costs. Your only hope is to increase revenue. You consult the economist on your staff who has researched studies on public transportation elasticities and she reports that the estimated price elasticity of demand for the first few months after a price change is about -0.3, but that after several years, it will be about -1.5. (a) Explain why the estimated values for price elasticity of demand differ. (b) Calculate what will happen to ridership and revenue over the next few months if you decide to raise fares by 5%. (c) Compute what will happen to ridership and revenue over the next few years if you decide to raise fares by 5%. (d) What happens to total revenue now and after several years if you choose to raise fares?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose you are the manager of the state transport company and your finance officer has just told you that the company is making losses .To reverse the losses been made by STC,your decide to cut transport service to certain destination but your board of directors do not want you to cut service,which means that you cannot cut costs.Your only hope is to increase revenue. You result the economist on your staff who has researched studies on public transportation elasticity and she reports that the estimated price.Elasticity of demand for the first few month after a price change is about -0.3 but the that after several year ,it will be about-1.5
i. Labour ii. Capital iii. Natural Resources (b) Explain whether each of the following is labour, capital, or a natural resource. An unemployed factory worker ii. A University professor iii. The library building on campus i. iv. Kakum National Park v. An untapped deposit of natural gas 5. A Science Laboratory Technology student, Kofi Mensah, often purchases toffees or bags of plantain chips between lectures; he tries to limit his spending on these snacks to C8 per week. A bag of plantain chips costs C0.75 and costs C0.50 per unit on campus. He has been purchasing an average of 6 bags of plantain chips and 7 toffees each week. Mr. Mensah is a careful maximizer of utility, and he estimates that the marginal utility of an additional bag of chips during a week is 6. In your answers use T to denote toffees and P to denote plantain chips. (a) How much is he spending on snacks? (b) How does this amount compare to his budget constraint? (c) What is the marginal utility of an additional toffee during the week?
Transcribed Image Text:i. Labour ii. Capital iii. Natural Resources (b) Explain whether each of the following is labour, capital, or a natural resource. An unemployed factory worker ii. A University professor iii. The library building on campus i. iv. Kakum National Park v. An untapped deposit of natural gas 5. A Science Laboratory Technology student, Kofi Mensah, often purchases toffees or bags of plantain chips between lectures; he tries to limit his spending on these snacks to C8 per week. A bag of plantain chips costs C0.75 and costs C0.50 per unit on campus. He has been purchasing an average of 6 bags of plantain chips and 7 toffees each week. Mr. Mensah is a careful maximizer of utility, and he estimates that the marginal utility of an additional bag of chips during a week is 6. In your answers use T to denote toffees and P to denote plantain chips. (a) How much is he spending on snacks? (b) How does this amount compare to his budget constraint? (c) What is the marginal utility of an additional toffee during the week?
6. Suppose you are the manager of the State Transport Company (STC) and your finance officer has just told you that the company is making losses. To reverse the losses been made by STC, you decide to cut transport services to certain destinations but your board of directors do not want you to cut services, which means that you cannot cut costs. Your only hope is to increase revenue. You consult the economist on your staff who has researched studies on public transportation elasticities and she reports that the estimated price elasticity of demand for the first few months after a price change is about -0.3, but that after several years, it will be about -1.5. (a) Explain why the estimated values for price elasticity of demand differ. Calculate what will happen to ridership and revenue over the next few months if decide to raise fares by 5%. (c) Compute what will happen to ridership and revenue over the next few years if you decide to raise fares by 5%. (d) What happens to total revenue now and after several years if you choose to raise fares? no.
Transcribed Image Text:6. Suppose you are the manager of the State Transport Company (STC) and your finance officer has just told you that the company is making losses. To reverse the losses been made by STC, you decide to cut transport services to certain destinations but your board of directors do not want you to cut services, which means that you cannot cut costs. Your only hope is to increase revenue. You consult the economist on your staff who has researched studies on public transportation elasticities and she reports that the estimated price elasticity of demand for the first few months after a price change is about -0.3, but that after several years, it will be about -1.5. (a) Explain why the estimated values for price elasticity of demand differ. Calculate what will happen to ridership and revenue over the next few months if decide to raise fares by 5%. (c) Compute what will happen to ridership and revenue over the next few years if you decide to raise fares by 5%. (d) What happens to total revenue now and after several years if you choose to raise fares? no.
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