The Acmeville Metropolitan Bus Service currently charges $0.99 for an all-day ticket and is used by an average of 623 ridersa day. The bus company is not earning a profit, but according to their contract with the city, they cannot cut the number ofbuses on the road. They must, therefore, find a way to increase revenuesThe bus company is considering increasing the ticket price to $1.21. The marketing department's studies indicate this priceincrease would reduce usage to 473 riders per day.Calculate the price elasticity of demand using the midpoint method for bus tickets to determine if the bus company shouldincrease price or decrease price to increase revenues. Enter your answer as an absolute value and round it to two places afterthe decimalprice elasticity of demand:Determine if demand is elastic or inelastic and what this implies regarding how ticket prices affect revenueDemand is inelastic, so decreasing ticket prices will increase revenueDemand is inelastic, so increasing ticket prices will increase revenueincreasing ticket prices will increase revenueDemand is elastic, soDemand is elastic, so decreasing ticket prices will increase revenue.

The mid-point formula for calculating price elasticity of demand is given below.

Answered: The Acmeville Metropolitan Bus Service…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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