Question: Suppose the demand for crossing the Channel Tunnel between England and France is given by

Q = 25,000 – 1,000P,

where P is in €/vehicle and Q is the number of vehicles per day.

(a) If the toll (P) is 10€/car, how much revenue is collected daily? (2 points)

(b) What is the price elasticity of demand at this point? (2 points)

(c) Could EuroTunnel (the operators that run the Tunnel) increase their revenues by changing their price? Why or why not? (2 points)

(d) [A little harder] At what toll price would the EuroTunnel achieve maximum total revenue? (3 points)

(e) Imagine that Paris’ Charles De Gaulle airport opened a new high speed rail link direct to downtown Paris in 20 minutes, partnering the Heathrow Express that does the same into downtown London, making flights between London & Paris much more convenient. How will this affect the elasticity of demand for trips through the Channel Tunnel? (2 points)