Suppose that you believe that the demand curve is a constant- elasticity demand curve: Q = Apε, where A is a positive constant and e is the constant elasticity of demand. You have some data and want to estimate the constant- elasticity demand curve Q = Apεu, where A is a positive constant, e is the constant elasticity of demand, and u is an error term. Take logarithms of both sides of this equation and show that you get an equation that is linear in logarithmic terms (called a log-linear equation). Explain how you can estimate this equation in Excel or other programs using the OLS techniques that we have discussed.
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