Possibility of small scale profitability entry in small

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Viton's 1981 study of urban transit costs found that urban transit firms operating in small cities (where fewer than one million vehicle-miles are produced annually) operate under increasing returns to scale, medium sized cities (which produce between one and five and a half million vehicle-miles annually) operate under constant returns to scale, and large cities (with over five and a half million vehicle-miles annually) operate under decreasing returns to scale.

A. Assuming that fares are set at marginal cost, what do these results imply about the possibility of small scale profitability entry in small, medium, and large cities?

B. Based upon Viton's results, are there any benefits to decentralizing urban transit systems in the largest cities?

Reference no: EM131055205

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