Most passenger trains operate far below full capacity. Under what circumstances would reducing travel fares be likely to increase total revenue?
A) if demand is unit inelastic
B) if demand is inelastic
C) if demand is unit elastic
D) if demand is elastic

Question

Quizplus · Accepted Answer

If demand is elastic, a reduction in travel fares would lead to a proportionally larger increase in demand for train travel, resulting in an increase in total revenue despite the lower fares. If demand is inelastic, reducing travel fares is unlikely to significantly increase the number of passengers, resulting in a decrease in total revenue. If demand is unit elastic, reducing travel fares would lead to an equal percentage increase in demand and decrease in fares, resulting in unchanged total revenue.

Most Passenger Trains Operate Far Below Full Capacity