05 Aug 2021

Posted on:

25 Jul 2021

1

# Unable to reach correct answer for question 6 of quiz

I am unable to reach the correct answer for question 6 of the quiz.

The question has stated that the current price is 2.56, price elasticity is -1.22 and the current purchase probability is 0.7. It asks that if price decreases by 0.02 then what is the new purchase probability.

Based on the logic of the course, this product is elastic to decreasing the price by 1% will increase the purchase probability by a factor of the price elasticity. However, a decrease of 0.02 is actually a 0.78% decrease in price and so re-calculating the price elasticity by this factor means that purchase probability should increase by 1.21% and I then get a final answer of 71.21% for purchase probability.

On the other hand, I could solve for beta using the information provided (beta = -1.5885) and obtain a new price elasticity for the new price (price elasticity = -1.5885 * 2.54 * 0.3) = -1.21). This implies, at the new reduced price, that purchase probability will increase by 1.21% and I get the same final answer of 71.21%.

Instructor
Posted on:

29 Jul 2021

0

Hi Joleen,
thanks for reaching out! Solving the equations for questions 5 and 6 can be a bit tricky.
What you need to do is rely on the general formula of price elasticity we discuss in lecture 4:
Customer Analytics in Python | 365 DataScience
and solve for x.
Let me know if you have any more questions on the topic.

Best,
365 Eli

Posted on:

29 Jul 2021

1

Using the formula E = %Y/%P with E = -1.22, Yt-1 = 0.7, Pt = 2.54, Pt-1 = 2.56 and solving for Yt yields a new purchase probability of 70.67%. This is still not considered the correct answer as per the quiz.

Instructor
Posted on:

05 Aug 2021

0

Hi Joleen,
I've been checking the quiz question and there might be a wrong answer given there, I'll double check and upload the correct one.
For question 5 - the formula is E = %Y/%P as you've correctly stated. You have E = -1,56, %Y = x -0.7, %P = 1%/100% and you need to solve for x.
Let me know if you still have doubts about the equations and questions.

Best,
365 Eli