In Massachusetts, the price elasticity of license plates is 3.5 and their price is $50. Massachusetts is:
A) maximizing revenue since elasticity is greater than 1 and revenue will increase after a price decrease when demand is elastic.
B) not maximizing revenue since elasticity is greater than 1 and revenue will increase after a price decrease when demand is elastic.
C) maximizing revenue since elasticity is greater than 1 and revenue will decrease after a price decrease when demand is elastic.
D) not maximizing revenue since elasticity is greater than 1 and revenue will decrease after a price decrease when demand is elastic.

Question

Quizplus · Accepted Answer

When demand is elastic (elasticity > 1), a decrease in price will lead to a proportionally larger increase in quantity demanded, thus increasing total revenue.

In Massachusetts, the Price Elasticity of License Plates Is 3