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r3q9 - Now suppose that the city doubles the fee from $8 to...

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Unformatted text preview: Now suppose that the city doubles the fee from $8 to $ 15. Let's determine what effect this will have on revenue for the city. To be conservative, let's assume that the absolute vaiue of the elasticity of the demand for car trips in central London is 2,. which is bigger than what you caicuiated in the previous question. Using a higher elasticity means that if you consider a given change in the total cost, the estimated numb er of trips will faii by more than it would if you used the true elasticity. Using this Fa rger elasticity is conservative because it will cause you to underestimate the revenue the city will coiiect at the higher fee. It predicts a bigger faii in the number of drivers,r which yields fess revenue. So, if you find that revenue goes up when you use an elasticity of 2 to estimate the effect of changing the fee from $8 to $31, you can be sure that it will go up with a tower value of the elasticity. 13. Use the number of trips you caiculated in the previous part to determine what will happen to revenue when the fee goes up to $15. Revenue wiii: if) A. increase _ E} B. Stay the same FF". C. Decrease u.- ...
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