Question 3 - Applying Marginal Analysis (Total: 10 marks)

You work for Tasmania in the public transportation department. You oversee pricing and revenue strategies for bus routes from rural communities into Hobart. You have been studying the data from the route between Cygnet and Hobart. You know that each round trip between Hobart and Cygnet costs $100 plus $5 for each passenger. For example, a round trip with 3 passenger would cost $115 and a trip with 1 passenger would cost $105. The data from the last 6 months of service are reported in the table below.

Price Per Round Trip ($)	Number of Passengers per Round Trip	Revenue per Round Trip ($)
15	8	120
14	14	196
13	16	208
12	18	216
11	20	220
10	22	220
9	24	216
8	26	208
7	27	189
6	27	162

Use marginal analysis to determine the price you would set per round trip if you wanted to maximise net benefit (profit)? Explain your reasoning using marginal analysis. Show any calculations or tables you made to determine your answer. (You only need to analyse the prices in the table)

(3 marks)

Of course, public transit has a positive externality associated with it. For example, the more

people that use public transport the less people use their own vehicles resulting in less emissions and less congestion. What price would you set if your objective is to maximise the number of passengers while still covering costs. (You only need to analyse the prices in the table)

(4 marks)

Explain why the two prices are different. You must use marginal analysis in your explanation. (3 marks)