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: Cengage Learning
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Question
Chapter 4, Problem 8E
(a)
To determine
Estimated regression line.
(b)
To determine
Economic interpretation of the estimated slope (b) coefficients.
(c)
To determine
The hypothesis that there is no relationship between the variables at 0.05 significance level.
(d)
To determine
Coefficient of determination.
(e)
To determine
(f)
To determine
Best estimate of the product sales when promotional expenditures are $80,000 and the selling
(g)
To determine
Point promotional and price elasticities at the values of promotional expenditure and selling price equal to $80,000 and $12.50 respectively.
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Suppose that an economist has been able to gather data on the relationship between demand and price for a particular product. After analyzing scatterplots and using economic theory, the economist decides to estimate an equation of the form Q= aPb, where Q is quantity demanded and P is price. An appropriate regression analysis is then performed, and the estimated parameters turn out to be a = 1000 and b = - 1.3. Now consider two scenarios: (1) the price increases from $10 to $12.50; (2) the price increases from $20 to $25. a. Do you predict the percentage decrease in demand to be the same in scenario 1 as in scenario 2? Why or why not? b. What is the predicted percentage decrease in demand in scenario 1? What about scenario 2? Be as exact as possible.
Suppose the Sherwin-Williams Company has developed the following multiple regression model, with paint sales Y (x 1,000 gallons) as the dependent variable and promotional expenditures A (x $1,000) and selling price P (dollars per gallon) as the independent variables.
Y=α+βaA+βpP+εY=α+βaA+βpP+ε
Now suppose that the estimate of the model produces following results: α=344.585α=344.585, ba=0.102ba=0.102, bp=−11.192bp=−11.192, sba=0.173sba=0.173, sbp=4.487sbp=4.487, R2=0.813R2=0.813, and F-statistic=11.361F-statistic=11.361. Note that the sample consists of 10 observations.
1.) According to the estimated model, holding all else constant, a $1,000 increase in promotional expenditures decrease or increase sales by approximately 102,813 or 11,192 gallons. Similarly, a $1 increase in the selling price decrease or increase sales by approximately 813,11,192 or 102 gallons.
2.)Which of the independent variables (if any) appears to be statistically significant (at the 0.05…
Q. Wilpen Company, a price-setting firm, produces nearly 80 percent of all tennis balls purchased in the United States. Wilpen estimates the U.S. demand for its tennis balls by using the following linear specification:
Q = a + bP + cM + dPR.
Where Q is the number of cans of tennis balls sold quarterly, P is the wholesale price Wilpen charges for a can of tennis balls, M is the consumers’ average household income, and PR is the average price of tennis rackets. The regression results are as follows:
a- Discuss the statistical significance of the parameter estimates a^, b^, c^, and d^ using the p-values. Are the signs of b^, c^, and d^ consistent with the theory of demand?
Wilpen plans to charge a wholesale price of $1.65 per can. The average price of a tennis racket is $110, and consumers’ average household income is $24,600.
b. What is the estimated number of cans of tennis balls demanded?
c) At the values of P, M, and Pr given, what are the estimated values of the price (E^), income…
Chapter 4 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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