Question

Urban transit systems, especially those with rail systems, typically experience significant economies of scale in operation. Consider the transit system data in Table 11.4. Note that the quantity is in millions of riders.

Draw the demand, marginal revenue, marginal cost, and average cost curves. Do they have the normal shapes?

Short answer

Yes, they have normal shapes.

Step-by-step solution

Step1. Introduction

While plotting graphs, the quantity is taken on X axis and price is taken on Y axis.

Corresponding to various quantities, we plot graphs of Demand, MC, MR, AC curves by plotting their values against price axis.

Step2. Explanation

We take quantity on the X axis and price on the Y axis.

D is the Demand curve, MR is the Marginal Revenue curve, MC is the Marginal Cost curve and AC is the Average Cost curve.

The curves do have a normal shape. The demand curve is downward sloping, indicating correct relationship between price and quantity demanded, i.e. inverse. MR, MC, AC curve too follow the general expectations of the curve shape.