Question

Are major-league baseball clubs profit-maximizing

monopolies? Some observers of this market have
contended that baseball club owners want to maxi-
mize 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?

Answer 1

A profit-maximizing monopoly can operate in the elastic portion of its demand curve, where a decrease in price leads to a larger increase in quantity sold and higher total revenue. If a baseball club were maximizing revenue, it would aim for a unitary elasticity of demand.

Step-by-step explanation:

A major-league baseball club may operate as a profit-maximizing monopoly. One way to test if a firm is a profit-maximizing monopoly is to check if it operates in the elastic portion of its demand curve. This is a relevant test because in the elastic portion, a decrease in price leads to a larger increase in quantity sold, resulting in higher total revenue. If a baseball club were maximizing revenue, it would aim for a unitary elasticity of demand. At this point, an equal percentage change in quantity and price would result in the same total revenue.