In order to use autos more efficiently, short term rentals of cars has been proposed for urban area use. Cars will be available at popular origins and destinations. One drives the car from one spot to another where another person may subsequently rent the car and so on. The proposal has recently been run as a demonstration project in a suburb of Paris for use in short trips such as for shopping, journey to recreation, to the train station, etc.
Suppose that the yearly demand for a typical individual for such services is estimated to be:
P = 50 – 0.25Q
where Q is the number of trips demanded when the price is P per trip.
Transit International is trying to figure out how to price the service. It costs them a constant 10 to provide a trip. Right now they are charging 18 per trip.
A consultant has suggested a subscription type of service whereby a potential user would purchase a yearly Transit International card. The card would then enable the user to consume a trip at a fixed fee per trip.
If the consultants advice was taken by Transit International, what price should Transit International charge for a yearly card and how much should they charge for each trip taken by the cardholder? Transit International wants to maximize their profits.
How much more profit do they make per customer by following the consultants advice than their current method of selling the service?
The price of a card should be: __________
The price of a trip should be: ___________
Profits are ______ greater by following the consultants pricing scheme