Demand curves were linear

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University of Richmond Professor Erik Craft analyzed the states' pricing of vanity plates. He found that in California, where vanity plates cost $28.75, the elasticity of demand was 0.52. In Massachusetts, where vanity plates cost $50, the elasticity of demand was 3.52. Assuming vanity plates have zero production cost and his estimates are correct, was each state collecting the maximum revenue it could from vanity plates? describe your reasoning. What recommendation would you have for each state to maximize revenue? Assuming the demand curves were linear, graphically demonstrate your reasoning.

Reference no: EM13677097

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