Memphis Transit, Ltd., operates a local mass transit system. The transit authority is a governmental agency related

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Memphis Transit, Ltd., operates a local mass transit system. The transit authority is a governmental agency related to the state government. It has an agreement with the state government to provide rides to senior citizens for 25 cents per trip. The government reimburses Memphis Transit for the “cost” of each trip taken by a senior citizen.

The regular fare is $1.00 per trip. After analyzing its costs, Memphis Transit figured that with its operating deficit, the full cost of each ride on the transit system is $3.00. The number of senior citizens on any route does not affect routes, capacity, or operating costs.

Required

a. What alternative prices could be used to determine the governmental reimbursement to Memphis Transit?

b. Which price would Memphis Transit prefer? Why?

ce. Which price would the state government prefer? Why?

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