The following log-linear demand curve for a price-setting firm is estimated using the ordinary least-squares method: Q

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The following log-linear demand curve for a price-setting firm is estimated using the ordinary least-squares method:

Q = aPbMcPdR

Following are the results of this estimation:

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a. The estimated demand equation can be expressed in natural logarithms as ln Q =_________.?

b. Does the parameter estimate for b have the expected sign? Explain.?

c. Given these parameter estimates, is the good a normal or an inferior good? Explain. Is good R a substitute or a complement? Explain.?

d. Which of the parameter estimates are statistically significant at the 5 percent level of significance??

e. Find the following estimated elasticities:?

(1) The price elasticity of demand (?).?

(2) The cross-price elasticity of demand (?XR).?

(3) The income elasticity of demand (?M).?

f. A 10 percent decrease in household income, holding all other things constant, will cause quantity demanded to_______ (increase, decrease) by_________ percent.?

g. All else constant, a 10 percent increase in price causes quantity demanded to ____________(increase, decrease) by__________ percent.?

h. A 5 percent decrease in the price of R, holding all other variables constant, causes quantity demanded to_________ (increase, decrease) by______________ percent.?

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