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

Q= aP^bM^cP^d_R

DEPENDENT VARIABLE: LNQ	R-SQUARE	F-RATIO	P-VALUE ON F
OBSERVATIONS: 25	0.8587	89.165	0.0001
VARIABLE	PARAMETER ESTIMATE	STANDARD ERROR	T-RATIO	P-VALUE
INTERCEPT	6.77	4.01	1.69	0.0984
P	-1.68	0.70	-2.40	0.0207
M	-0.82	0.22	-3.73	0.0005
PR	1.35	0.75	1.80	0.0787

a. The estimated demand equation can be expressed in natural logarithms as:

lnQ =

b. Does the parameter estimated 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:

a. The price of elasticity of demand ().

b. The cross- price elasticity of demand (_XR)

c. 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 (5%) decrease in the price of R, holding all other variables constant, causes quantity demanded to ______________ (increase, decrease) by ___________ percent.