Final answer:
A transit system operating with no subsidy at zero economic profit would supply output where its total revenue equals total costs, at a price that covers all operating costs, including factors of production, minimizing average cost and operating at the break-even point.
Step-by-step explanation:
If the transit system were regulated to operate with no subsidy, meaning at zero economic profit, it would need to set a price where its total revenue equals its total costs. This means the price charged to the consumers would be one where the transit system is able to cover all its operating costs, including paying for factors of production at their opportunity costs, but without any extra profit over and above this. The output supplied would be at a level where the average cost of providing the service is minimized, as any additional output would start to incur losses, and any lesser output would mean not fully utilizing scale efficiencies.
Without subsidies, the transit system would probably supply less output compared to a situation with subsidies because they would have to operate at a break-even point to ensure zero economic profit. This scenario is different from an unregulated monopoly, where the transit system might reduce output and raise prices to maximize profits. However, in the case of zero economic profit regulation, the price would typically be lower than in the monopoly scenario as it reflects average costs without the monopoly premium.