Please provide the correct answers for the following Bob’s Underground, a limite

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Please provide the correct answers for the following

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+dPRQ=a+bP+cM+dPR

where QQ is the quantity demanded of the most popular product B.U. sells, PP is the price of that product, MM is income, and PRPR is the price of a related product. The regression results are:

Adjusted R2R2 0.8222

Question 16

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Do you think these regression results will generate good sales estimates for B.U. LLC, rap?

Select one:

a. No; though the R2R2 is good and the variables have the expected signs, the estimated coefficients are not statistically significant at the 10% level.

b. Yes, except that the R2R2 is too low to be convincing. The rest of the results (p-values, expected signs) are satisfactory.

c. Yes; the parameter estimates have expected signs, the individual coefficients (besides the intercept) are statistically significant at the 10% level, and the R2R2 is high.

d. No; the estimated coefficient for R2R2 should be positive, not negative.

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Now assume that the income is $35,000, the price of the related good is $24, and B.U. chooses to set the price of its product at $21.

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What is the estimated number of units sold given the data above? (Round to the nearest single unit; i.e., no decimals).

Answer:

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What are the values for the own-price (EE), income (EMEM), and cross-price (EXREXR) elasticities?

Select one:

a. E=0.389E=0.389, EM=0.174EM=0.174, EXR=4.55EXR=4.55

b. E=0.383E=0.383, EM=2.074EM=2.074, EXR=0.455EXR=0.455

c. E=0.855E=0.855, EM=0.26EM=0.26, EXR=1.32EXR=1.32

d. E=3.81E=3.81, EM=2.31EM=2.31, EXR=0.459EXR=0.459

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If PP increases by 4%, what would happen (in percentage terms) to quantity demanded?

Select one:

a. QQ decreases by 0.383%0.383%.

b. QQ decreases by 4%4%.

c. QQ changes by 4%×0.383=1.53%4%×0.383=1.53%

d. QQ increases by 4%×0.383=1.53%4%×0.383=1.53%

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If MM increases by 3%, what would happen (in percentage terms) to quantity demanded?

Select one:

a. QQ increases by 3%×2.074=6.22%3%×2.074=6.22%.

b. QQ increases by 3%×3%=0.09%3%×3%=0.09%.

c. QQ falls by 2.07%.

d. QQ decreases by 3%×0.383=0.001153%×0.383=0.00115.

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If PRPR decreases by 5%, what would happen (in percentage terms) to quantity demanded?

Select one:

a. QQ decreases by 6.22%.

b. QQ falls by 5%×2.56=0.128%5%×2.56=0.128%.

c. QQ rises by 2.28%.

d. QQ increases by 2.56%.

Independent Variables Coefficients Standard Error t-stat P-value Intercept -32.32 65.77 -0.491 0.626 P -2.46 1.38 -1.813 0.079 M 0.008 0.001 6.045 9.53E-07 PR -2.56 1.26 -2.025 0.051

Explanation / Answer

16)

c. Yes; the parameter estimates have expected signs, the individual coefficients (besides the intercept) are statistically significant at the 10% level, and the R2R2 is high.

17)

Q=a+bP+cM+dPR

= -32.32 -2.46 P+0.008 *M + 2.56 PR

= -32.32 -2.46* 24 +0.008*35000 + 2.56* 21

= 242.4

hence 242

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