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Point price elasticity of demand

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Reference no: EM132401078

P Q

$87.50 370

$82.25 399

$81.38 410

$76.13 438

$70.88 444

a. Run OLS to determine the demand function as P = f(Q). How much confidence do you have in this estimated equation? Use algebra to invert the demand function to 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=$87.50? What is the point price elasticity of demand when P=$77.50?

d. To maximize total revenue, what would you recommend if the company was currently charging P=$82.25? If it was charging P=$77.50?

e. Use your first demand function to determine an equation for TR and MR as a function of Q.

f. What is the total-revenue maximizing price and quantity, and how much revenue is earned there? Compare that to the TR when P = $87.50 and P = $77.50.

Reference no: EM132401078

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