# Problems and Questions

817 WordsOct 16, 20144 Pages
I. Briefly explain the meaning of R-squared. A time series analysis of demand tends to result in a higher R-squared than one using cross-sectional data. Why do you think this is the case? R-squared measures the goodness of fit of a regression equation. A time series analysis of demand tends to result in a higher R-squared than one using cross-sectional data because data is being gathered at multiple periods of time as opposed to one period of time when using cross-sectional data. II. What is the identification problem? What effect will this problem have on the regression estimates of a demand function? Explain. The identification problem occurs when there is an inability in the principle to identify the best estimate of values of…show more content…
Explain. A recession would be harmful to the company because the demand for goods would fall faster than an increase in income. c. Do you think that this firm should cut its price to increase its market share? Explain. The firm should cut its price to increase the market share because the price elasticity is greater than 1. d. What proportion of the variation in sales is explained by the independent variables in the equations? How confident are you about this answer? Explain. Competitor’s Price (Px) = 3.23 Price (P) = 2.4 Income (Y) =2.08 Advertising (A) =2.22 Microwaves (m) = 1.19 When conducting a t-test the hypothesis can be rejected because all of the coefficients can be rejected at 5%. VII. The sales data for the Lonestar Sports Apparel Company for the last 12 years are as follows. 2001 \$400,000 2009 \$700,000 2002 \$440,000 2010 \$756,000 2003 \$480,000 2011 \$824,000 2004 \$518,000 2012 \$906,000 2005 \$554,000 2006 \$587,000 2007 \$617,000 2008 \$654,000 a. What is the 2001-2012 compound growth rate? 906,000/400,000 = 2.265 (906,000/400,000) ^ (1/12) = 7.05% b. Using the result obtained in part a, what is your 2013 projection? 906,000/ 0.705 = \$1, 285, 106 c. If you were to make your own projection, that would you forecast? I would forecast that sales would continue to steadily increase for the