The Cab Fare in Horseville Is Regulated

question 462

Essay

The cab fare in Horseville is regulated. Recently, the government decided to raise it from $2.00 to $2.50 per ride. After this rise in fare, cab ridership decreased by 10 percent.
a) What is the price elasticity of demand for cab rides in Horseville? (Use the midpoint formula to calculate the percentage change in the price.) Is the demand for rides elastic or inelastic?
b) According to your estimate, what happened to the cab drivers' revenue after the fare rose? Explain.
c) Why might your estimate of elasticity be inaccurate?

Understand the impact of different cost drivers (machine-hours, direct labor-hours) on overhead rates and product costing.

Calculate unit product costs within a job-order costing system.

Determine selling prices based on unit costs and markup percentages.

Apply overhead to jobs using predetermined overhead rates based on various cost drivers.

---

Definitions:

Noncumulative

Describes preferences or rights that do not carry over or accumulate if they are not used within a certain period.

Nonparticipating

In the context of insurance or preferred stock, referring to policies or shares that do not entitle the holder to share in profits beyond a specified amount.

Stockholders

Individuals or entities that own shares in a corporation, thus holding an ownership stake.

Dividends in Arrears

Dividends on cumulative preferred stock that have not been paid in the period they were due, accumulating until paid by the corporation.