Inverse, Direct Demand Function, and Point Price Elasticity
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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.
P Q
$44 642
$42 1,108
$26 2,932
$24 3,465
$15 4,007
$10 4,821.
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Solution Summary
Solving a problem for inverse, direct demand function, & point price elasticity.
Education
- MBA, Merage School of Business, Univ of Cal, Irvine
- BA, Univ of Cal, Irvine
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