Gce Model Questions Vol1 2023 Economics Question 42

A city plans a new subway line. Weekly ridership (in thousands) is described by the demand equation \(Q = 8000 - 1500P\), where \(P\) is the fare per ride in pounds. Construction costs £120 million, financed by a 20‑year loan at 5% annual interest, with equal annual repayments. Operating cost is £4 million per year. \(\)a) Assuming the city wants to break even over the 20‑year period (ignoring discounting beyond the loan interest), calculate the fare \(P\) that achieves break‑even and give the corresponding average weekly ridership.\n\nb) A congestion tax reduces road traffic by 10% and shifts 5% of former road users to the subway, increasing weekly ridership by 300 000 trips (i.e. 0.3 thousand). With this shift, what fare now ensures break‑even?