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50. there is pressure on the mayor to reduce the fare
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Skyscraper City has a subway system, for which a one-way fare is $1.50. There is pressure onthe mayor to reduce the fare by one-third, to $1.00. The mayor is dismayed, thinking that thiswill mean Skyscraper City is losing one-third of its revenue from sales of subway tickets. Themayor’s economic adviser reminds her that she is focusing only on the price effect and ignoringthe quantity effect. Explain why the mayor’s estimate of a one-third loss of revenue is likely tobe an overestimate.Page 1 of 6

Because when a lower price is given more tickets will be sold therefor there will be additionalrevenue coming in.2.Bob, Bill, Ben, and Brad Baxter have just made a documentary movie about their basketballteam. They are thinking about making the movie available for download on the Internet, and theycan act as a single-price monopolist if they choose to. Each time the movie is downloaded, theirInternet service provider charges them a fee of $4. The Baxter brothers are arguing about whichprice to charge customers per download.The accompanying table shows the demand schedulefor their film.Price ofdownloadQuantity ofdownloadsdemanded$100816346210015a. Calculate the total revenue and the marginal revenue per download.Price ofdownloadQuantity ofdownloadsdemandedTotalRevenueMarginalRevenue$1000xx8188631854624221020-10150-4b. Bob is proud of the film and wants as many people as possible to download it.Which pricewould he choose? How many downloads would be sold?

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