Question

Suppose that you believe that the demand curve is a constant elasticity demand​ curve:

Q=Ape​,

..............................................

Score: 0 of 1 pt 8 of 11 (7 complete) HW Score: 54.55%, 6. Text Question 4.2 EQuestion Help Suppose that you believe that the demand curve is a constant elasticity demand curve: Q Ap where A is a positive constant and e is the constant elasticity of demand. You have some data and want to estimate a constant elasticity demand curve: 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

Answer 1

And 1)

Q=Ap^¢u

Taking log for both sides we get

LnQ=LnA+¢LnP+LnU

Now when we compare this transformed equation with

Y=a+bp+u

Then we can actually set comparison with log equation mentioned above by

"a" represents LnA and "b" represent ¢

Hence option E is correct response.