he demand function for Newtonâ€™s Donuts has been estimated as follows:
Qx = -14 â€“ 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 Newtonâ€™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.
Calculate the price elasticity of demand for Newtonâ€™s Donuts and describe what it means. Describe your answer and show your calculations. Derive an expression for the inverse demand curve for Newtonâ€™s Donuts. Describe your answer and show your calculations. If the cost of producing Newtonâ€™s Donuts is constant at $0.15 per donut, should they reduce the price and thereafter, sell more donuts (assuming profit maximization is the companyâ€™s goal)? Should Newtonâ€™s Donuts spend more on advertising?