Question

Define the terms elastic, inelastic, and unit elastic. Explain why a team maximiz- ing revenue would always operate at the point of unit elasticity on their demand curve The NHL recently expanded to 32 teams by adding Seattle. Suppose you were asked to predict ticket sales in Seattle for the 2021-2022 season using data from current NHL teams. What are some variables that you would want to use and why.

Answer 1

(1)

Demand is elastic if a N% increase (decrease) in price causes quantity demanded to decrease (increase) by more than proportionately, thus decreasing (increasing) revenue. Demand is inelastic if a N% increase (decrease) in price causes quantity demanded to decrease (increase) by less than proportionately, thus increasing (decreasing) revenue. Demand is inelastic if a N% increase (decrease) in price causes quantity demanded to decrease (increase) by exactly N%, leaving revenue unchanged.

A demand curve has varied elasticities along it. Demand is perfectly elastic (with infinite elasticity) at its vertical intercept and perfectly inelastic (with zero elasticity) at its horizontal intercept. At mid-point of demand curve, elasticity is 1.

Revenue is maximized when marginal revenue is zero. Since revenue is maximized at mid-point of demand curve, firms targeting revenue maximization produces at mid-point of demand curve where elasticity is 1.

NOTE: As per Answering Policy, 1st question is answered.