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Log-linear estimated equation

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Reference no: EM131560675

1. Assume that the following log-linear estimated equation shows the relationship between the dependent variable QD (quantity demanded) and the independent variables P (price), M (disposable income) and A (advertisement expenditure) for Nike's tennis shoes:

lnQD = 3.69 - 1.17 lnP + 0.45 lnM + 2.28 lnA 

  1. How to interpret the coefficients of lnP, lnM and lnA? Please discuss each one briefly.
  2. Given the equation, which strategy is preferred to increase the total revenue for Nike? Cut the price or increase the advertisement expenditure? Please explain your choice in the language of economics.  

2. The XYZ Company developed the following quarterly sales ($1,000) forecasting model:

Yt = 3.75 + 0.04t,   

where Yt = predicted sales ($million) in quarter t; t = 1 (First quarter of 2000), 2 (Second quarter of 2000), 3 (Third quarter of 2000), and so on. Given the model, how much will be the sales for the fourth quarter of 2017? Please show your derivation.

Reference no: EM131560675

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