A) discuss wether you think these regression results will generate good sales. B
ID: 3357942 • Letter: A
Question
A) discuss wether you think these regression results will generate good sales. 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 increased by 4% what would happen (in prercntage terms) to quantity demanded? E) if M increased by 3% what would happen (in percentage terms) to quantity demanded? Bob's Underground, a limited liability corporation specializing in new rap artists (B.U. LLC, rap) has the following demand function: Q=a+bP + cM + dP, where Q is the quantity demanded of the most popular product B.U. sells, P is the price of that product, M is income, and PR is the price of a related product. The regression results are: Adjusted R Square 0.8222 Independent Variables Coefficients Standard Error tStat P.value Intercept -32.32 2.46 0.008 -2.56 65.77 -0.491 0.626 1.38 -1.813 0.079 0.001 6.045 9.53E-07 1.26 -2.025 0.051 PR a. Discuss whether you think these regression results will generate good sales estimates for B.U. LLC,ra p. assume that the income is $35,000, the price of the related good is $24, and B.U. chooses to set the price Now of its product at $21. 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 4%, what would happen (in percentage terms) to quantity demanded? e. If M increases by 3%, what would happen (in percentage terms) to quantity demanded? f. IfPe decreases by 5%, what would happen (in percentage terms) to quantity demanded?Explanation / Answer
Q.4 Here the R- square value is 0.8222. That tell that 82.22% of variation is expressed by the independent variables P, M and PR. Here as we see the P - value for individual independent varaible. Only Variableis significant here. But, other two variable like P and PR are not significant here. But, overall the model is significant here.
(b) HEre M = $ 35,000
PR = $ 24 and P = $ 21
Q = -32.32 -2.46P + 0.008M -2.56PR
Q = -32.32 - 2.46 * 21 + 0.008 * 35000 - 2.56 * 24 = 134.58
(d) Here the values for the elasticities of
(i) Own -price = (dQ/Q)/ (dP/P) = (dQ/dP) * (P/Q) = (-2.46) * (21/134.58) = -0.3838
(ii) Income = (dQ/Q)/ (dM/M) = (dQ/dM) * (M/Q) = 0.008* (35000/134.58) = 2.08
(iii) Cross - Price = (dQ/Q)/ (dPr/Pr) = (dQ/dPr) * (Pr/Q) = (-2.56) * (24/134.58) = -0.4565
(d) If P increase 4 %, the qunatity demanded will decrease
the New Pnew = 21 * 1.04 = $ 21.84
Qnew = -32.32 -2.46P + 0.008M -2.56PR
Qnew = -32.32 -2.46 * 21.84 + 0.008 * 35000 -2.56 * 24 = 132.5136
Change in Q = (132.5136 - 134.58) * 100/ 134.58 = -1.535 %
(e) If M increase 3% , the quantity demanded will increase
the New Pnew = 35000 * 1.03 = $ 36050
Qnew = -32.32 -2.46P + 0.008M -2.56PR
Qnew = -32.32 -2.46 * 21 + 0.008 * 36050 -2.56 * 24 = 142.98
Change in Q = (142.98 - 134.58) * 100/ 134.58 = 6.24 % increase
(f) if Pr increase 5%, the quantity demanded will decrease
the New Pnew = 24 * 1.05 = $ 25.2
Qnew = -32.32 -2.46P + 0.008M -2.56PR
Qnew = -32.32 -2.46 * 21 + 0.008 * 35000 -2.56 * 25.2 = 131.508
Change in Q = (131.508 - 134.58) * 100/ 134.58 = -2.28 % increase
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