Q_x = -14 – 54Px + 45Py + 0.62Ax
where Qx represents thousands of donuts; Px is the price per donut; Py is the average price per donut of other brands of donuts; and Ax represents thousands of dollars spent on advertising Newton’s Donuts. The current values of the independent variables are Ax=120, Px=0.95, and Py=0.64.

Show all of your calculations and processes. Describe your answer for each question in complete sentences, whenever it is necessary.

1. Calculate the price elasticity of demand for Newton’s Donuts and describe what it means. Describe your answer and show your calculations.

2. Derive an expression for the inverse demand curve for Newton’s Donuts. Describe your answer and show your calculations.

3. If the cost of producing Newton’s Donuts is constant at $0.15 per donut, should they reduce the price and thereafter, sell more donuts (assuming profit maximization is the company’s goal)?

Answer rating: 100% (QA)

Answer Qx 1454Px 45Py 062Ax Ax 120 Px 095 Py 064 Plugging in these values Qx1454Px 45 x ... View the full answer