Delhi Metro Case Solution

Presented By :
Suhail Nasir
Mari Vivekanand

MDI Gurgaon

 What is the short run daily

demand curve for transit given
the information from the
Business Magazine and Delhi
Metro?
Q=1.04-0.016P

What short run strategy (in general and

specifically) would you come up with given this
demand curve and the pending budget needs of
the Delhi Metro system?

Fare should be increased. Given the shortfall the

daily revenue should be increased by 1.3. The
initial daily revenue is Rs 12 million now needs to
be increased to Rs 13.3 million. If you solve two
equations one with new TR and the demand
function you would get two solutions following
Sridhar Acharyas formula. Look for a feasible
solution. Thus the new price quantity combination
may be the following:
(47.5, 0.28) and (17.5, 0.76). The second one is
feasible as rise in prices and fall in quantity are
not to large extent. The first combination is
impractical.

Will this same type of strategy work in the long run?

Specifically why or why not? What should the MD
do?

No. The long run price elasticity is

highly elastic. In such a case, the
Metro should think of reducing the
fare rather than increasing it.

What may be the likely reasons for the

difference in price elasticities between long
run and short run?

In the long run a consumer has many

options and number of substitutes
grow. Also the other factors
influencing demand such as income,
tastes and preferences and price of
related products may change. This
may cause elasticities to be high in
long run.

If you could only do one of the above in the

short run (raise fares by 1% or lower travel
time by 1%), what would you do? Why?

The total revenue would increase to

Rs12.08364 million if you raise fare by one
percent. Price would rise to Rs15.15 and
quantity demanded would fall to 0.7976
million.
The total revenue in case of lower travel
time elasticity would increase to Rs 12.084
million. The quantity would increase to
0.8056 million without any change in price
Thus the second option is better.

Why is there a difference in fare and

travel elasticities between urbanites
and suburbanites?
Elasticities being higher for suburban
indicate a greater responsiveness to
travel time and fare. Urbanites
responsiveness are rather low as most of
them have high income and may not
make much difference as they hardly
would travel by Metro. For suburbanites
income level is low and therefore they
would look for other substitutes available

What does the income elasticity tell

you?
Metro is an inferior travel means for
greater Delhi region.