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Calculation of Arc elasticity of demand.

Riders for Nippon's Monorail

In October 1968 the Tokyo monorail Company denied that it was facing bankruptcy. It stated that its operating results were much improved since it had reduced its fare from 250 yen to 150 yen (70 cents to 42 cents) on its 12-mile run from Tokyo airport to the center of the city and by equivalent percentages on shorter commuter runs.

1. Suppose that this price cut was completely responsible for its rise in revenues from 460 million yen in 1966 to 640 million yen in 1967.

2. Compute the indicated arc elasticity of demand.

(Hint: As a unit of quantity, use the full-trip equivalent).

P
Q Revenue
Elasticity
1966

460,000,000

1967

640,000,000

 

 

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