Problem
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.
a. Assuming vanity plates have zero production cost and his estimates are correct, was each state collecting the maximum revenue it could from vanity plates? Explain your reasoning.
b. What recommendation would you have for each state to maximize revenue?
c. If these estimates are correct, which state was most likely to be following a politically unsupportable policy?
d. Assuming the demand curves were linear, graphically demonstrate your reasoning in a and b.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.