Question: In Example 7.1, two points on the demand curve were given (see Figure 7.10). a. Suppose three additional points are estimated by Madison: (1) demand

In Example 7.1, two points on the demand curve were given (see Figure 7.10).

a. Suppose three additional points are estimated by Madison: (1) demand of 460 when price is $65,

(2) demand of 355 when price is $75, and

(3) demand of 275 when price is $85. With these new points and the original two points, estimate and interpret the best-fitting linear demand curve;

do the same for the best-fitting constant elasticity demand curve.

b. Calculate the mean absolute percentage error

(MAPE) for each of the two fits, linear and constant elasticity, where each MAPE is the average of the absolute percentage errors for the five points. On the basis of MAPE, which curve provides the better fit?

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