Point price elasticity of demand

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Reference no: EM131715087

Copy and paste the following data into Excel:

P

Q

$4.80

1170

$4.53

1235

$3.98

1337

$3.72

1442

$3.49

1548

a. Run OLS to determine the inverse demand function (P = f(Q)); how much confidence do you have in this estimated equation? Use algebra to then find the direct demand function (Q = f(P)).

b. Using calculus to determine dQ/dP, construct a column which calculates the point-price elasticity for each (P,Q) combination.

c. What is the point price elasticity of demand when P=$3.98? What is the point price elasticity of demand when P=$3.81?

d. To maximize total revenue, what would you recommend if the company was currently charging P=$4.53? If it was charging P=$3.81?

e. Use your indirect demand function to determine an equation for TR and MR as a function of Q, and create a graph of P and MR on the vertical and Q on the horizontal axis.

f. What is the total-revenue maximizing price and quantity, and how much revenue is earned there? Compare that to the TR when P = $4.80 and P = $3.81.

Reference no: EM131715087

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