Question

A bus company operates two routes. On route 1, research suggests that the price elasticity is -0.8 and on the other route -1.3. The company has decided to revise fares upwards on both routes by 10% this year. Comment on the decision. What alternative pricing strategy would you suggest? 

Answer 1

The alternative pricing strategy is to increase fares on root 1, as its demand is inelastic, and decrease fares on root 2 which demand is elastic.