Question:

(a) The regression results for the quantity demanded of good X is given by

ln Q_X = 1220 - 9.5 ln P_X - 2.21 ln P_Y + 1.01 ln M
t values (5.3)  (-5.12)      (-2.15)           (5.41)

Adjusted R² = 0.96 F statistics = 160.20 P value = 0.001

Where Q_X is the quantity demanded of X, P_X is the price of X, PY is the price of Y and M is the consumer income. Evaluate the above regression and discuss how these results may be useful to a manager.

(b) The Wall Street Journal reports that the prices of PC components are expected to fall by 5 to 8 percent over the next six months. With the aid of diagrams, explain the likely impact and what the implications are for a manager in the following cases:

(i) Case1: If you are the manager of a small firm that manufactures PCs.

(ii) Case 2: If you are the manager of a small software company.