9/12/15 9:27 PM

QUESTION 1: A quant jock from your firm used a linear demand specification to estimate the demand for its product and sent you a hard copy of the results. Unfortunately, some entries are missing because the toner was low in her printer. Use the information presented below to find the missing values. Then, answer the accompanying questions.

Instructions: Do not round intermediate calculations. Round only your final calculation. Round your final answers to 2 decimal places. Include a minus (-) sign for all negative answers.

SUMMARY OUTPUT

Regression Statistics

Multiple R 0.38

R Square '1'

Adjusted R Square '2'

Standard Error 20.77

Observations 150

Analysis of Variance

Degrees ofFreedom

Sum of Squares

Mean Square F

Regression 2 '3' 5199.43 12.05

Residual 147 63,408.62 431.35

Total '4' 73,807.49

Coefficients

Standard Error t Stat

P-value

Intercept 58.87 '5' 3.84 0.00

Price of X -1.64 0.85 '6' 0.06

Income (‘000s) '7' 0.24 4.64 0.00

a. Based on these estimates, write an equation that summarizes the demand for the firm’s product.

Instructions: Round your responses to 2 decimal places. Do not round intermediate calculations. Round only your final calculation.

QXd = - PX + M

Please write complete this equation.

b. Which regression coefficients are statistically significant at the 5 percent level?

QUESTION 2: The demand function for good X is ln QXd = a + b ln PX + c ln M +

e, where Px is the price of good X and M is income. Least squares regression reveals that: â= 7.42 b^ =-2.18 c^ =0.34

a. If M  = 55,000 and Px = 4.39, compute the own price elasticity of demand based on these estimates. Determine whether demand is elastic or inelastic.

Own price elasticity of demand: ?

Demand is ?b. If M = 55,000 and Px = 4.39, compute the income elasticity of demand based on these estimates. Determine whether X is a normal or inferior good.

Income elasticity of demand: ?

X is ?