175k views
19 votes
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 $16, you can be sure that it will go up with a lower value of the elasticity. Question: Suppose that the increase in the fee from $8 to $16 reduces travel time in the central city from 30 minutes down to 20 minutes. What is the percentage change in the total cost of driving in central London

User Tobixen
by
3.9k points

1 Answer

4 votes

Answer:

The percentage change in the total cost of driving in Central London is:

= 33.33%

Step-by-step explanation:

a) Data and Calculations:

Old Fee for driving per minute = $8

New Fee for driving per minute = $16

Percentage change in fee = $8/$8 * 100 = 100%

Driving time at old fee of $8 per minute = 30 minutes

Driving time at new fee of $16 per minute = 20 minutes

Percentage Change in driving time = 10/20 * 100 = 50%

Total cost of driving 30 minutes at old fee of $8 per minute = $240

Total cost of driving 20 minutes at the new fee of $16 per minute = $320

Therefore, the percentage change in the total cost of driving = ($320 -$240)/$240 * 100

= $80/$240 *100 = 33.33%

User Fjalcaraz
by
3.8k points