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This question was created from Assignment 3-SP19 AP1.docx


2. Copy and paste the following data into Excel:
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=$13.75? What is the point price elasticity of
demand when P=$11.83?
d. To maximize total revenue, what would you recommend if the company was currently charging
P=$13.20? If it was charging P=$11.83?
e. Use your first 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 = $13.75 and P = $11.83.

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