The ATV Company produces a specialty cement used in the construction of roads. ATV is a price-setting firm and estimates the demand for its cement using a demand function in the linear form: Q = f (P, M, PR) where Qc = demand for cement/month (in yards) Pc = the price of cement per yard, M = country’s tax revenues per capita, and PR = the price of asphalt per yard. The manager of ATV obtained the following results in her attempt to estimate the demand for cement in the succeeding months. The results are presented below: DEPENDENT VARIABLE Qc R- SQUARE F-RATIO P-VALUE ON F OBSERVATIONS 64 0.8093 84.872 0.0001 VARIABLE PARAMETER ESTIMATE STANDARD ERROR T-RATIO P-VALUE INTERCEPT 8.20 4.01 2.04 0.0461 PC -3.54 1.64 -2.16 0.0357 M 0.64287 0.19 3.38 0.0014 PA 0.7854 0.38 2.07 0.0439 1. If the price of cement per yard increases by 10, what will happen to the estimated quantity of cement demanded? What happens if it will increase by 20%? 2. If tax revenue per capita (M) increases by 10, what will happen to the estimated quantity of cement demanded? 3. Write the resulting regression equation.

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 7E

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The ATV Company produces a specialty cement used in the construction of roads. ATV is a price-setting firm and estimates the demand for its cement using a demand function in the linear form:

Q = f (P, M, PR)

where Qc = demand for cement/month (in yards) Pc = the price of cement per yard, M = country’s tax revenues per capita, and PR = the price of asphalt per yard. The manager of ATV obtained the following results in her attempt to estimate the demand for cement in the succeeding months. The results are presented below:

DEPENDENT VARIABLE	Qc	R- SQUARE	F-RATIO	P-VALUE ON F
OBSERVATIONS	64	0.8093	84.872	0.0001

VARIABLE		PARAMETER ESTIMATE	STANDARD ERROR	T-RATIO	P-VALUE

INTERCEPT		8.20	4.01	2.04	0.0461
PC		-3.54	1.64	-2.16	0.0357
M		0.64287	0.19	3.38	0.0014
PA		0.7854	0.38	2.07	0.0439

1. If the price of cement per yard increases by 10, what will happen to the estimated quantity of cement demanded? What happens if it will increase by 20%?

2. If tax revenue per capita (M) increases by 10, what will happen to the estimated quantity of cement demanded?

3. Write the resulting regression equation.

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