ECO108 HW6 - ECO 108 Fall 2010 Bo He Name: _ ID: _ Homework...

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ECO 108 Fall 2010 Bo He Name: __________________________ ID: __________________ Homework 6 Due Monday Oct. 25th, at the beginning of LECTURE 1. You are the manager of the public transit system. Your finance officer has just advised you that the system faces a deficit. Your board doesn’t want you to cut service, which means that you can’t cut costs. Your only hope is to increase revenue. You wonder whether a fare increase would boost revenue. You consult the economist on your staff who has researched studies on public transportation elasticities. She reports that the estimated price elasticity of demand for the first few months after a price change is about –0.5, but that after two years, it will be about –1.5. (a)Explain why the estimated values for price elasticity of demand differ.(6 pts) (b) Compute what will happen to ridership (quantity demanded) over the next few months if you decide to raise fares by 5 percent. (6pts) (c) Compute what will happen to ridership (quantity demanded) over the next few years if you
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ECO108 HW6 - ECO 108 Fall 2010 Bo He Name: _ ID: _ Homework...

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