3. An econometrician regressed the cake sales on the cake price as well as the expenditureon advertising and its square. She obtained the following fitted regression equation,SALES = 109.719 – 7.640PRICE + 12.151ADVERT - 2.768ADVERT²Economic theory says the firm should increase advertising expenditure to the pointwhere an extra $1 of expenditure results in an extra $1 of sales (i.e., marginal cost =marginal revenue). Choose the wrong statement.A. The term ADVERT2 captures some nonlinearity.A. This is an example of the (estimated) multivariate linear regression model.B. The estimated marginal revenue is 12.151 +2(−2.768)ADVERT.C. The estimated optimal level of advertising is approximately 2.014.D. A t test can be used to test the hypothesis that advertising does not affect sales.4. Suppose we are interested in predicting the price of house using the interior area ofhouse. Consider the regression model,PRICE = B1 + B2SQFT + yıPOOL + y2(POOL × SQFT) + uwhere PRICE is the market price for house in $1000, SQFT is the interior area ofhouse in square feet, and POOL is 1 if house has a pool and 0, otherwise. Choosethe correct statement about the regression model for houses with a pool.A. The intercept is ß₁ and the slope is ß₂.B. The intercept is y₁ and the slope is y2.C. The intercept is (ß₁ + y₁) and the slope is ³₂.D. The intercept is (ß₁ + y₁) and the slope is (ß₂ + y2).E. None of the above is correct5. Suppose we are interested in predicting the price of house using the interior area ofhouse. Consider the regression model,PRICE =B1 + B2SQFT + yıPOOL + 72(POOL × SQFT) + uwhere PRICE is the market price for house in $1000, SQFT is the interior area ofhouse in square feet, and POOL is 1 if house has a pool and 0, otherwise. We want to testwhether the regression model for houses with a pool is equivalent to theregression model for houses without a pool. Choose the correct statement.A. An appropriate null hypothesis is Ho : y₁ = 0.B. An appropriate null hypothesis is Ho: y2 = 0.C. An appropriate null hypothesis is Ho : Y₁ = y2 = 0.D. The test is called as RESET.E. None of the above is correct.

4. The correct statement is: B. The estimated marginal revenue is 12.151 +2(−2.768)ADVERT. The…

3. An econometrician regressed the cake sales on the cake price as well as the expenditure on advertising and its square. She obtained the following fitted regression equation, SALES = 109.719 – 7.640PRICE + 12.151ADVERT – 2.768ADVERT² Economic theory says the firm should increase advertising expenditure to the point where an extra $1 of expenditure results in an extra $1 of sales (i.e., marginal cost = marginal revenue). Choose the wrong statement. A. The term ADVERT² captures some nonlinearity. A. This is an example of the (estimated) multivariate linear regression model. B. The estimated marginal revenue is 12.151 +2(−2.768)ADVERT. C. The estimated optimal level of advertising is approximately 2.014. D. A t test can be used to test the hypothesis that advertising does not affect sales.

3. An econometrician regressed the cake sales on the cake price as well as the expenditure on advertising and its square. She obtained the following fitted regression equation, SALES = 109.719 – 7.640PRICE + 12.151ADVERT – 2.768ADVERT² Economic theory says the firm should increase advertising expenditure to the point where an extra $1 of expenditure results in an extra $1 of sales (i.e., marginal cost = marginal revenue). Choose the wrong statement. A. The term ADVERT² captures some nonlinearity. A. This is an example of the (estimated) multivariate linear regression model. B. The estimated marginal revenue is 12.151 +2(−2.768)ADVERT. C. The estimated optimal level of advertising is approximately 2.014. D. A t test can be used to test the hypothesis that advertising does not affect sales.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter4: Estimating Demand

Section: Chapter Questions

Problem 8E

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Imagine that you work for the maker of a leading brand of low-calorie, frozen microwavable food that estimates the following demand equation for its product using data from 26 supermarkets around the country for the month of April. Note: The following is a regression equation. Standard errors are in parentheses for the demand for widgets. QD = - 5200 - 42P + 20PX + 5.2I + 0.20A + 0.25M (2.002) (17.5) (6.2) (2.5) (0.09) (0.21) R2 = 0.55 n = 26 F = 4.88 Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables: Q = Quantity demanded of 3-pack units P (in cents) = Price of the product = 500 cents per 3-pack unit PX (in cents) = Price of leading competitor's product = 600 cents per 3-pack unit I (in dollars) = Per capita income of the standard metropolitan statistical area (SMSA) in…
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