Question

You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand, several years after the price change, will be about −1.5. Select the statement that best describes the results of raising the fare in the long run.

A. total revenue rises immediately, since demand will remain price inelastic.B. total revenue will fluctuate as the demand fluctuates.C.Total revenue falls, since demand changes and becomes price elastic.

Answer 1

A. total revenue rises immediately, since demand will remain price inelastic.

Step-by-step explanation:

The price of public transit system is one of the things that have a price inelastic, this means that as cost goes up, the demand and consumption of that good will remain fairly the same, so the total revenue will instantly rise because the demand will remain the same, as people have little to no choice on transportation.