A vendor is interested in the best price to charge at his various dispensers located in a given area. Over a period of time, he has collected the below monthly data on its sales of a given item for different prices.
1 2 3 4 5 6 7 8 9 10 11 12
Price .45 .50 .45 .40 .35 .35 .50 .55 .45 .50 .40 .40
Quantity 98 80 95 123 163 168 82 68 96 77 150 125
a. Estimate the linear regression demand equation. If the price is cut by $0.10, by how much will the volume of sales change?
b. Estimate the demand equation using a log-linear regression of the form Q=kPb. What is the price elasticity of demand? Does this equation fit the data better than the part a equation? Explain?