The Mass Rapid Transit (MRT)System in Hong Kong Has Been

question 240

Essay

The Mass Rapid Transit (MRT)System in Hong Kong has been running significant losses.Transport Ministry officials have argued over whether to raise fares to combat the losses.One argument against a fare increase is that it will aggravate traffic congestion on the streets during peak commuter hours.Suppose that the current fare is $4 and the government is considering raising it to $6.Officials estimate that this reduces the number of rides purchased from 10,000 to 8,000 per day.
a.Using the midpoint formula, what is the estimated elasticity of demand for MRT rides?
b.What does this elasticity of demand suggest to you about what will happen to total revenue earned by the transit system if the fare increase happens?
c.Last year, the MRT system incurred a loss of $50,000 per day.Do you think the fare increase will resolve the deficit problem as well as Ministry officials anticipate? Explain.

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Definitions:

Indirect Costs

Expenses that are not directly attributable to a specific product or service but are necessary for the general operation of a business, such as utilities, rent, and administration.

Globalizing Operations

The process of expanding business operations on a global scale, adapting to international markets, and leveraging global efficiencies.

Supply Chain

The network of all entities involved in producing and delivering a product or service from supplier to customer.