The ST Company that operates a bus system takes into consideration, the round-trip fare and the parking rates when making decisions about its daily ridership.

Question

The Sydney Transportation Company operates an urban bus system in New South Wales, Australia. Economic analysis performed by the firm indicates that two major factors influence the demand for its services: fare levels and downtown parking rates. Table 1 presents information available from 2005 operations. Forecasts of future fares and hourly parking rates are presented in Table 2.Sydney’s economists supplied the following information so that the firm can estimate ridership. Based on past experience, the coefficient of cross elasticity between bus ridership and downtown parking rates is estimated at 0.2, given a fare of $1.00 per round trip. This is not expected to change for a fare increase to $1.25. The price elasticity of demand is currently estimated at −1.1, given hourly parking rates of $1.50. It is estimated, however, that the price elasticity will change to −1.2 when parking rates increase to $2.50. Using these data, estimate the average daily ridership for 2006 and 2007.

Answer 1

Question

Chapter 3, Problem 9E

To determine

The ST Company that operates a bus system takes into consideration, the round-trip fare and the parking rates when making decisions about its daily ridership.

Expert Solution & Answer

Trending nowThis is a popular solution!

See solution

Check out sample textbook solution

Students have asked these similar questions

The Sydney Transportation Company operates an urban bus system in New South Wales, Australia. Economic analysis performed by the firm indicates that two major factors influence the demand for its services: fare levels and downtown parking rates. Table 1 presents information available from 2005 operations. Forecasts of future fares and hourly parking rates are presented in Table 2.Sydney’s economists supplied the following information so that the firm can estimate ridership. Based on past experience, the coefficient of cross elasticity between bus ridership and downtown parking rates is estimated at 0.2, given a fare of $1.00 per round trip. This is not expected to change for a fare increase to $1.25. The price elasticity of demand is currently estimated at −1.1, given hourly parking rates of $1.50. It is estimated, however, that the price elasticity will change to −1.2 when parking rates increase to $2.50. Using these data, estimate the average daily ridership for 2006 and 2007.

Verizon Wireless recently ran a pricing trial to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area and increased prices by 5% to customers in those areas. One week later, the number of customers enrolled in Verizon’s cellular plans declined 4% in those states, while enrollments in states where prices were not increased remained flat. The manager used this information to estimate the price elasticity of demand for Verizon and, based on her findings, immediately increased prices in all market areas by 5% in an attempt to boost the company’s 2020 annual revenues. One year later, the manager was perplexed because Verizon’s 2020 annual revenues were 10% lower than those in 2019: the price increase apparently led to a reduction in the company’s revenues. Did the manager make an error? Explain.

Recently, Pacific Cellular ran a pricing trial in order to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area and increased prices by 5 percent to customers in those areas. One week later, the number of customers enrolled in Pacific’s cellular plans declined 4 percent in those states, while enrollments in states where prices were not increased remained flat. The manager used this information to estimate the own price elasticity of demand and, based on her findings, immediately increased prices in all market areas by 5 percent in an attempt to boost the company’s 2012 annual revenues. One year later, the manager was perplexed because Pacific Cellular’s 2012 annual revenues were 10 percent lower than those in 2011 - the price increase apparently led to a reduction in the company’s revenues. Did the manager make an error? Explain.