As the manager of your product, you are in the best position to provide a best p

Question

As the manager of your product, you are in the best position to provide a best professional guess for intercept “a”, and slope “b”. While you cannot estimate these numbers using statistical methods, your knowledge of your product and the market in which you want sell your product should equip you with the expertise to have a best professional guess for intercept “a”, and slope “b”. In other words, these numbers should be consistent with your pricing policy and demand conditions for your product. These are not simply some random numbers you guess. If you know your product, you should be able to come up with a rational guess. Describe the process by which you guessed intercept “a”, and slope “b”. This description crucially depends on fully understanding what these parameters mean and imply. Simply stating that the numbers are the intercept and slope will not give you any credit. Feel free to round the number so that you can work with it easily and that your calculations don’t get overly complicated. Once you have specified these parameters, please be sure to explicitly write your equation.

Explanation / Answer

Let us consider the demand for automobiles. For a rough guess for intercept and slope coefficients in case of demand for automobiles, it is seen that intercept or a will be small as demand for automobiles will be zero or very small when the independent variable or price is considered to be zero. The slope or change in quantity demanded of the product when there is change in price will be greater than 1 or high because the demand for automobiles is elastic. Thus, change in price will lead to larger change in quantity demanded for the product , thus b term will be high.

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