Are major-league baseball clubs profit-maximizing monopolies? Some observers of

Question

Are major-league baseball clubs profit-maximizing monopolies? Some observers of this market have contended that baseball club owners want to maximize attendance or revenue. Alexander (2001) says that one test of whether a firm is a profit-maximizing monopoly is to check whether the firm is operating in the elastic portion of its demand curve (which he finds is true). Why is that a relevant test? What would the elasticity be if a baseball club were maximizing revenue? O A. If a firm were operating in the inelastic portion of the demand curve, it could raise its price and increase profit. Revenue is maximized when elasticity equals 0 O B. If a firm were operating in the inelastic portion of the demand curve, it could raise its price and increase profit. Revenue is maximized when elasticity equals O C. If a firm were operating in the elastic portion of the demand curve, it could raise its price and increase profit. Revenue is maximized when elasticity equals -1 O D. If a firm were operating in the elastic portion of the demand curve, it could raise its price and increase profit. Revenue is maximized when elasticity equals 0

Explanation / Answer

Correct option is (C).

hen firm operates in elastic portion of demand curve, a X% rise in price increases total revenue, and costs remaining unchanged, it increases profit. However, revenue is maximized t the midpoint of the demand curve where price elasticity of demand equals -1 (not 0).

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