The New City Subway has 40,000 passengers every day. However, they are fairly price sensitive. If the current price of $ 2 were to increase to $ 2.50, it is likely that there would only be 30,000 passengers each day. On the other hand, if the price were to drop to $ 1.50, the ridership would increase to 50,000. The variable costs are only 8 cents per passenger. The fixed costs of operating the subway are $ 70,000 per day. How many passengers are needed each day to break even at the current $ 2 price? Prepare a flexible budget for the subway system at prices of $ 1.50, $ 2.00, and $ 2.50. (Refer to Chapter 3 for a discussion of flexible budgets.) Considering only the financial implications, what should be done? Why? How can you reconcile the results of the flexible bud-get with the results of the break- evencalculation?
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