Second best pricingassume the mtarsquos production cost, Ask an Expert

Economics

Second Best Pricing

Assume the MTA’s production cost curve is given by C=1,200,000,000 + 3.5q where q denotes the number of subway trips. From past fare changes we know that a 20% drop in fares will increase the number of transit trips by 4%. In contrast, the fare drop has lowered the number of automobile trips by only 0.2%. Currently, the ratio automobile trips to transit trips is 20. Current the private cost of the average automobile is $1.20. However, it’s overall social marginal cost is $3.20. Calculate the first best transit fare per trip.

a) Calculate the first-best transit fare per trip.

b) Calculate the second-best transit fare per trip.

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91677764

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