A local transit authority charges $1 for a bus ride. An economics study suggests that in the price range from $0.50 to $1.50, the elasticity of demand for bus trips is 1.2. To increase its revenue, the transit authority should

To increase its revenue, transit authority should lower the fare.

Explanation:

The 'elasticity of demand' measures the change in consumers response in quantity he demands as a result of the change in price, other factors remaining same.

A product is called elastic if with the increase or decrease in price, there is a drastic change in the quantity demand of the product. If the transit authority will lower its fare, then their revenue will increase as the elasticity of demand for bus trip is 1.2. By lowering the fare, the demand would increase and their revenue will increase.

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