A Firm Is Considering Raising Its Price by 9 Percent

question 62

Essay

A firm is considering raising its price by 9 percent and has hired an econometrician to estimate the elasticity of demand for its product.The econometrician estimates the parameters of a log-liner demand function and reports that the parameter estimate for the elasticity of demand is −1.5 and the standard error of the estimate is 0.3.
a.If the firm raises its price by 9 percent,what is the expected change in quantity demanded?
b.Approximate the upper and lower bounds on the 95 percent confidence interval for the change in quantity demanded.

---

Definitions:

Asset

Something that is owned by or owed to an individual or a business firm.

Medium of Exchange

An item that is widely accepted in exchange for goods and services, facilitating trade by eliminating the need for a coincidence of wants.

Federal Deposit Insurance Corporation

Insures bank deposits up to $100,000.

Automated Teller Machines

Electronic banking outlets that allow customers to complete basic transactions without the need for a branch representative or teller.