Hi everyone, I recently applied for a position and received a home assignment. One of the question is related to Price Elasticity and Maximum Absolute Profit Calculation. Let's say this question is not directly related to my field of expertise nor to the position so I'm quite struggling in providing a reasonable answer to the question. I have tried to do some research but due to time limitation I don't have enough resources to deep dive into it. I would appreciate if someone can provide me an answer to this question and explain the logic a bit. Much appreciate!
You are in charge of deciding on the pricing of a campaign. Currently, we are bidding
$0.25 per click, and getting a return of $0.50 revenue per click, i.e. the cost per click is
$0.25. A campaign is at its optimal level when ROI = 1/e. Assuming a price elasticity (e)
of 0.85 , which bid would maximise the amount of absolute profit?
e = dClicks/Clicks / dCPC/CPC