Statistics Solutions

(See Steps) A local owner of a privately-held video rental store read in a newspaper that the elasticity of market demand for video rentals is -.45. She thus

Question: A local owner of a privately-held video rental store read in a newspaper that the elasticity of market demand for video rentals is -.45. She thus reasoned that if she raised the price of her rentals, her total revenue would increase. So she increased her price by 20%, and her revenues fell sharply. What is your explanation for this outcome?

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