4.The Experimental Aircraft Company (EAC) manufactures and sells UAV. An empirical demand function for one of the firm's products has been estimated over the last 21 quarters using regression analysis. The estimated demand function is: QUAV = - 8,000 - 5,000PUAV + 200A + 300I + 2,000PX (6,000) (1,000) (120) (200) (800) R2 = 91%; Where: QUAV is the number of aircraft sold PUAV is the price A is hundreds of dollars of advertising ($00) I is thousands of dollars of disposable income per capita ($000) PX is by a competitor price.

A. Which variable seems to be the strongest predictor of change in UAV sold? Why?

B. How would you characterize the ability of this empirical demand function to explain demand for the experimental aircraft?

C. Currently, PUAV is $8, advertising is $25,000, disposable income per capita is $20,000 and PX is $7 and SEE=1000. What are expected sales in this period, and what range of sales would you specify for the current period if you wanted to establish a 99% confidence interval?

D. What is the demand curve currently facing EAC?

E. What is the point price elasticity of demand for Y at the current price?

F. Given the current price elasticity of demand, would a price reduction increase EAC profits? Explain.

G. What demand curve would EAC face for Product Y if it raised advertising expenditures to $37,500?