Answer the questions below based on the Price Response Survey of Resume Magic book.
- For guidance, see pages 51-54 of Dolan and Simon
- Van Westendorp reading in Session 1
- Demand Curve and Regression Review Notes
- Using van Westedorp what is the optimal book price based on the data collected? What are the learnings about possible prices from this method? Plot the data to support your results.
- Use a simple linear regression to estimate the demand curve Q = a – bP, whereby a is the (constant) estimated intercept term and b is the price coefficient of the independent variable (price per unit). Interpret the main statistical results and diagnostics. What is the meaning of ‘b’ and is it statistically significant?
- You may assume that the AVC (unit variable costs) associated with the production and distribution of each book are $5/unit. Find the ‘inverse demand curve’ where P is defined as a function of Q. Use the estimated demand function to calculate the profit maximizing price and quantity.
- Are there missing variables that would be useful to include in order to estimate the demand function more accurately.
- If you were to design a price-response survey what would you add/delete/change? How do your results across methods compare?
- Check information on Amazon regarding the current Resume Magic book price. What do you think are some factors that would explain why your computed profit maximizing price is lower or higher than the current price charged on Amazon?