Inverse, Direct Demand Function, & Point Price Elasticity
Copy and paste the following data into Excel:
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) What is the point price elasticity of demand when P=$42? How would you characterize demand when the price is around $42?
c) What is the point price elasticity of demand when P=$24? How would you characterize demand when the price is around $24?
d) To maximize total revenue, what would you recommend if the company was currently charging P=$42? If it was charging P=$24?
e) Determine an equation for MR as a function of Q, and create a graph of P and MR on the vertical and Q on the horizontal axis.
Solving a problem for inverse, direct demand function, & point price elasticity.