Question 3 Optimal Pricing and Elasticities Q 3, part A Use the detergent dataset to determine the price elasticity of demand for 128 oz Tide. Compute the 90 percent confidence interval for this elasticity. Q 3, part B 1 One simple rule of pricing is the "inverse elasticity" rule that the optimal gross margin should be equal to the reciprocal of the absolute value of the price elasticity, i.e. Gross Margin elasticity. For example, suppose we estimate that the price elasticity is -2 (a 1 per cent increase in price will reduce sales (in units) by 2 per cent. Then the optimal gross margin is 50 percent. 1 Suppose this retailer is earning a 25 per cent gross margin on 128 oz Tide. Perform appropriate hypothesis test to check if the retailer is pricing optimally at the 90 per cent confidence level? Hints: i. use the inverse elasticity rule to determine what elasticity is consistent with a 25 per cent gross margin. ii. Use the confidence interval!