Question: The New City Subway has 40 000 passengers every day However
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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