The Pilot Pen Company has decided to use 15 test markets to examine the sensitivity of demand for its new product to various prices, as shown in the following table. Advertising effort was identical in each market. Each market had approximately the same level of business activity and population.a. Using a linear regression model, estimate the demand function for Pilot’s new pen.b. Evaluate this model by computing the coefficient of determination and by performing a t-test of the significance of the price variable.c. What is the price elasticity of demand at a price of 50 cents? TEST MARKET PRICE CHARGED (¢) QUANTITY SOLD(THOUSANDS OF PENS) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 50 50 55 55 60 60 65 65 70 70¢ 80 80 90¢ 90 40 20.0 21.0 19.0 19.5 20.5 19.0 16.0 15.0 14.5 15.5 13.0 14.0 11.5 11.0 17.0
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
The Pilot Pen Company has decided to use 15 test markets to examine the sensitivity of demand for its new product to various prices, as shown in the following table. Advertising effort was identical in each market. Each market had approximately the same level of business activity and population.
a. Using a linear regression model, estimate the demand
b. Evaluate this model by computing the coefficient of determination and by performing a t-test of the significance of the price variable.
c. What is the price elasticity of demand at a price of 50 cents?
| TEST MARKET | PRICE CHARGED (¢) | QUANTITY SOLD (THOUSANDS OF PENS) |
|
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 |
50 50 55 55 60 60 65 65 70 70¢ 80 80 90¢ 90 40 |
20.0 21.0 19.0 19.5 20.5 19.0 16.0 15.0 14.5 15.5 13.0 14.0 11.5 11.0 17.0 |
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