Elasticity and Revenue: California and Massachusetts Vanity Plates
A study found that in California, where car vanity license 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, was each state collecting the maximum revenue it could from vanity plates? What recommendation should be given to each state to maximize revenue? Which state was most likely to be following a political unsupportable policy?