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Econometrics

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Interpreting Parameter Values as Elasticities

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Suppose you estimate a demand model for baseball tickets. The estimated model is, $Q = 1005 - 30 P$, where $Q$ represents the quantity demanded of baseball tickets and $P$ represents the price.

You know that the average number of tickets sold is $\bar{Q} = 250$ and the average price across baseball parks is $\bar{P} = \$5.00$.

If a baseball club owner decides to raise the price of tickets, will the team's revenues increase, decrease, or remain the same?

A

There is not enough information to determine the effect of a price increase.

B

Total revenue will increase.

C

Total revenue will decrease.

D

Total revenue will remain the same.

E

Total revenue will increase or decrease, but will not definitely not remain the same.