Answer to Question #86468 in Microeconomics for MATETE

Question

You are still the CEO of Metrorail . Analysts have determined that the price elasticity of 1,4 is a weighted average figure. During peak hours in the morning and evening the price elasticity of demand is 0,8 and during the rest of the day it is 2,6.How would this information affect your pricing strategy ?

Answer 1

During rush hours, in the morning and in the evening, elasticity begins to tend to zero, which indicates that price becomes less important for people, because you need to get there in time: ground transportation at rush hour does not guarantee accuracy in time. At other times, elasticity increases due to a decrease in the flow of passengers. The real price varies due to other factors not related to elasticity. And the difference in consumption is compensated by changing the flow rate.