Eco 550 - Managerial Economics and Globalization

Name ___________________________________________________________

ECO 550 - Managerial Economics and Globalization

Spring 2011

Assignment #1

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Part I: Exercise in Demand Estimation and Interpretation:

Early in 2008, the South Florida Transportation Authority (SFTA), a public agency responsible for serving the commuter rail transportation needs of South Florida, was faced with rising operating deficits on its system. Also, because of a fiscal austerity program at both the federal and state level, the hope of receiving additional subsidy support was slim.

The board of directors of SFTA asked the system manager to explore alternatives to alleviate the financial plight of the transit system. The manager suggested a major cutback in service but the board indicated this was not politically acceptable and would only be considered as a last resort.

The second suggestion was an increase in the price of a ride. Since it had been six years since the last price increase, the manager suggested a price increase from $2.00 (the current level) to $3.00. The board considered this alternative and ordered the manager to conduct an impact study of how this price hike would effect ridership on the SFTA.

The manager collected data on important variables thought to have a significant impact on the demand for rides on SFTA. The data was collected over a 27 year period and included the following variables:

1. Price per ride (in cents) – designated as P.

2. Population in the metropolitan area serviced by SFTA (in thousands of dollars) – designated as T

3. Disposable per capita (in dollars) – designated as I

4. Parking rate per hour in the downtown area (in cents)- designated as H

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Year | Weekly Riders (Y) | Price (P) per ride | Population (T) | Income (I) | Parking Rates (H) |

1982 | 1200 | 30 | 1800 | 5800 | 100 |

1983 | 1190 | 30 | 1790 | 6200 |...