Mass transit bus systems can be characterized by two aspects, supply and demand. As in most systems, the supplier's objective is to minimize the system's total cost yet maximize its attractiveness to the users. The present study applied this concept to a bus system in small urban area by minimizing the total operational costs and maximizing the system's attractiveness to the riders. The total operational costs are reduced by designing a route-network which will yield a minimum total bus travel distance within the physical and economic constraints. On the demand side, a measure of attractiveness is constructed based on the probability that a person will ride a bus given a certain level of service of the bus system and a cost figure for using the private automobile. The main purpose of this work is to find the equilibrium point of the demand and supply of a bus transit system so that decisions on some policy variables such as bus capacity, bus fare, determined. / Master of Science