In California, the price elasticity for vanity license is 0.5 and their price is $78. California...
In California, the price elasticity for vanity license is 0.5 and their price is $78. California is:
a. maximizing revenue since elasticity is less than 1 and revenue will increase after a price increase when demand is inelastic.
b. not maximizing revenue since elasticity is less than 1 and revenue will increase after a price increase when demand is inelastic.
c. maximizing revenue since elasticity is less than 1 and revenue will decrease after a price increase when demand is inelastic.
d. not maximizing revenue since elasticity is less than 1 and revenue will decrease after a price increase when demand is inelastic.
Homework Answers
Answer:
Given
price elasticity for vanity license is 0.5
price is $78.
California is:
(b): not maximizing revenue since elasticity is less than 1 and revenue will increase after a price increase when demand is inelastic.
option(b) is correct
Reason:
A revenue is maximum when the absolute value of elasticity is 1. The price and elasticity are positively related so the increase in price increases elasticity and increases revenue up to the elasticity is 1.
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