Abstract
This paper develops a simple cost model for bus operators that enables the estimation of short-, medium-, and long-run marginal costs. The relationship between these marginal costs and trip lengths are examined. The model is estimated with cross sectional data from 138 bus companies in Norway. The Norwegian bus fare system is compared with the model's results. Assuming that bus fares should be set in line with marginal costs, ordinary bus fares are found to be too high for short distance trips and too low for long distance trips, while the discounted fares are too high for all trips.
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