In Figure 3.5 two estimated demand curves are shown. These demand curves result from regression equations in which Mai estimates quantity demanded as a function of price and no other variables. However, Mai recognized that other variables, such as sunshine or temperature, may affect the demand for pie. Collecting this data requires effort. In which town should collecting such data be a higher priority for Mai if she is trying to improve her ability to predict pie demand? Explain.

Figure 3.5

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Mai, a bakery owner, changes the price of apple demand curve in panel a, where R? = 0.98. In pie every Friday for 14 weeks to determine the panel b, where R2 = 0.54, the data points are more weekly demand curve for apple pie. The observed widely scattered around the estimated demand price-quantity data points lie close to the estimated curve. (a) R2 = 0.98 (b) R2 = 0.54 * 15 10 10 10 20 30 40 10 20 30 40 Q, Thousands of pies per month Q, Thousands of pies per month p.$ per pie p, $ per pie