Reference no: EM131074781
Smith Corp. has the following demand function: Q+= a + bP + cM + dPr, where Q is the quantity demanded of the product Smith Corp. sell, P is the price of that product, M is income, and Pr is the price of the related product.
where Q is the quantity demanded of the product Smith sells, P is the price of that product, M is income, and PRis the price of a related product. The regression results are:
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DEPENDENT VARIABLE:
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Q
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R-SQUARE
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F-RATIO
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P-VALUE ON F
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OBSERVATIONS:
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32
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0.7984
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36.14
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0.0001
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VARIABLE
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PARAMETER
ESTIMATE
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STANDARD
ERROR
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T-RATIO
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P-VALUE
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INTERCEPT
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846.30
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76.70
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11.03
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0.0001
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P
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-8.60
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2.60
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-3.31
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0.0026
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M
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0.0184
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0.0048
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3.83
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0.0007
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PR
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-4.3075
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1.230
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-3.50
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0.0016
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Now assume that the income is $10,000, the price of the related good is $40, and Conlan chooses to set the price of its product at $30.
b. What is the estimated number of units sold given the data above?
c. What are the values for the own-price, income, and cross-price elasticities?
d. If P increases by 5%, what would happen (in percentage terms) to quantity demanded?
e. If M increases by 8%, what would happen (in percentage terms) to quantity demanded?
f. If PR decreases by 4%, what would happen (in percentage terms) to quantity demanded?
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Bureau of economic analysis web site
: Visit the Bureau of Economic Analysis Web site at www.bea.gov In U.S. Economic Accounts under National click on Gross Domestic Product (GDP), then Interactive Tables:GDP and the National Income and Product Account (NIPA) Historical Tables
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