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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.
Copy and paste the following data into Excel:
PQ
$4.801170
$4.531235
$3.981337
$3.721442
$3.491548
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 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
