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The total operating revenues of a public transportation authority are $ 100 million while its total operating costs are $ 120 million. The price of a ride is $ 1, and the price elasticity of demand for public transportation has been estimated to be - 0.4. By law, the public transportation authority must take steps to eliminate its operating defi cit.

( a) What pricing policy should the transportation authority adopt? Why?

( b) What price per ride must the public transportation authority charge to eliminate the defi cit if it cannot reduce costs?

Microeconomics, Economics

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