This paper presents a continuum approximation model for the operating cost of demand responsive transit (DRT) systems in large urban networks. Applications of the proposed model shed light on ways demand and characteristics of the DRT system affect major components of cost: fleet, vehicle hours, and vehicle miles traveled. Verifying the relationship with empirical data, results show an accurate approximation of the operating cost for the paratransit system in New Jersey. Furthermore, we develop a systematic approach for evaluating the efficiency of policy implementations for DRTs. Finally, the circumstances where coordinated taxis could be a cost reduction strategy are identified.