If the demand function for city bus rides is P = 100 - 10Q and the present price of a ride is 50, then
A)raising prices will increase city revenue.
B)raising prices will decrease city revenue.
C)raising prices will not change city revenue.
D)from the information given it is not clear what would happen to city revenue if price is increased.

Question

Quizplus · Accepted Answer

The demand function for city bus rides is P = 100 - 10Q. We can calculate the current quantity demanded by substituting P=50 into the equation:
50 = 100 - 10Q
10Q = 50
Q = 5
The current quantity demanded is 5.

If the price is raised, the quantity demanded will decrease according to the law of demand. This will affect the total revenue earned by the city. 
Total Revenue = Price x Quantity Demanded

Let's consider what would happen if the price is increased from 50 to 60:
New Quantity Demanded:
60 = 100 - 10Q
10Q = 40
Q = 4
The new quantity demanded is 4.

New Total Revenue:
Total Revenue = Price x Quantity Demanded
Total Revenue = 60 x 4
Total Revenue = 240

Comparing the new total revenue of 240 to the previous revenue of 50 x 5 = 250, we see that the revenue has decreased. Therefore, raising prices in this case will decrease city revenue.

If the Demand Function for City Bus Rides Is P