The table below provides the demand schedule for rides on Uber, a popular ride-s
ID: 2764194 • Letter: T
Question
The table below provides the demand schedule for rides on Uber, a popular ride-sharing service that works in competition with the taxi industry. Use the information provided to complete the table, filling in the blanks where indicated. show your work for each column.
Rate
Quantity Demanded( Number of rides, Thousands)
Total Revenue (Thousands of Dollars)
% Change in Price
% Change in Quantity Demanded
Elasticity
$1/Mile
25
___
___
___
___
$2/Mile
20
___
___
___
___
$3/Mile
15
___
___
___
___
$4/Mile
10
___
___
___
___
$5/Mile
6
___
___
___
___
$6/Mile
3
___
___
___
___
A) Suppose Uber is currently charging $1.50/mile. To increase total revenue, should Uber raise or lower rates? Explain in a sentence.
B) Suppose Uber is currently charging $5.50/mile. To increase total revenue, should Uber raise or lower rates? Explain in a sentence.
Rate
Quantity Demanded( Number of rides, Thousands)
Total Revenue (Thousands of Dollars)
% Change in Price
% Change in Quantity Demanded
Elasticity
$1/Mile
25
___
___
___
___
$2/Mile
20
___
___
___
___
$3/Mile
15
___
___
___
___
$4/Mile
10
___
___
___
___
$5/Mile
6
___
___
___
___
$6/Mile
3
___
___
___
___
Explanation / Answer
(1)
Rate
(2)
Quantity Demanded
(Number of rides)
(Let,
1 Ride =
1 Mile)
(3) = (1) * (2)
Total Revenue (Thousands of Dollars)
(4)
% Change in Price
(5)
% Change in Quantity Demanded
(6) = (5) / (4)
Elasticity
[ (% Change in Quantity Demanded) / (% Change in Price) ]
A) If Uber is currently charging $1.50/mile. To increase total revenue, Uber should raise rates. Because at this rate (Rate < $4/Mile), Demand is inelastic, i.e. the percent change in demand is less than the percent change in price (as evident from the table). So, if rate is decreased, the demand will not increase in that proportion, thereby lowering the total revenue.
A) If Uber is currently charging $5.50/mile. To increase total revenue, Uber should lower the rates. Because at this rate (Rate > $4/Mile), Demand is perfectly elastic, i.e. the percent change in demand is more than the percent change in price (as evident from the table). So, if rate is decreased, the demand will increase in a higher proportion, thereby increasing the total revenue.
(1)
Rate
(2)
Quantity Demanded
(Number of rides)
(Let,
1 Ride =
1 Mile)
(3) = (1) * (2)
Total Revenue (Thousands of Dollars)
(4)
% Change in Price
(5)
% Change in Quantity Demanded
(6) = (5) / (4)
Elasticity
[ (% Change in Quantity Demanded) / (% Change in Price) ]
$1/Mile 25,000 $25,000 - - - $2/Mile 20,000 $40,000 100% 20% 0.2 (Demand is inelastic) $3/Mile 15,000 $45,000 50% 25% 0.5 (Demand is inelastic) $4/Mile 10,000 $40,000 33.33% 33.33% 1 (Demand is unit elastic) $5/Mile 6,000 $30,000 25% 40% 1.6 (Demand is perfectly elastic) $6/Mile 3,000 $18,000 20% 50% 2.5 (Demand is perfectly elastic)Related Questions
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