Sometimes firms conduct experiments where they temporarily change prices (this may be done with selective coupons and other discounting methods) to see how the consumer responds to a price change. Let's assume that our firm charges $10 per unit of output and on average has 600 units sold per day. However, for the last week the firm offered a $1 discount and charged only $9 per unit of output. During the week of the discount the firm observed that the average daily sales were 700 units.
(i)If we operate under the assumption of ceteris paribus, what is the best linear representation of the demand faced by the firm [please provide the equation for the demand in terms of Q = f(P)].
(ii)If we continue to operate under the assumption that the demand is linear, what prediction can you make about the firm's level of sales at the price of $8?

Question

Quizplus · Accepted Answer

The Answer of Sometimes firms conduct experiments where they temporarily change prices (this may be done with selective coupons and other discounting methods) to see how the consumer responds to a price change. Let's assume that our firm charges $10 per unit of output and on average has 600 units sold per day. However, for the last week the firm offered a $1 discount and charged only $9 per unit of output. During the week of the discount the firm observed that the average daily sales were 700 units.
(i)If we operate under the assumption of ceteris paribus, what is the best linear representation of the demand faced by the firm [please provide the equation for the demand in terms of Q = f(P)].
(ii)If we continue to operate under the assumption that the demand is linear, what prediction can you make about the firm's level of sales at the price of $8?

Sometimes Firms Conduct Experiments Where They Temporarily Change Prices (This