Dr. Husein Name:

Demand Estimation -

Suppose that you purchased a commercial shaved ice and snow cone machine to open a shaved ice/smoothie stand on a beach that is very busy with tourists. Because this is a new business, you have tried a different number of prices including running a few specials to attract customers. As such, you have collected the following Quantity and Price data (n=20) to analyze and to probably help you set a more permanent price.

SMOOTHIE QUANTITY	SMOOTHIE PRICE
56	$4.08
67	3.61
69	3.50
84	2.46
108	0.99
45	5.33
91	2.33
76	3.14
51	3.33
49	4.72
86	2.57
88	1.69
70	3.62
53	4.78
60	4.24
97	2.09
67	3.86
70	3.38
79	2.91
57	4.58

Report the following In Excel

A. Enter the data in an Excel spreadsheet (name this sheet as Data) and in the same sheet, below the data, graph the relationship between the quantity demanded and the price using a SCATTER plot and insert a Trend line. Label your graph "Estimated Demand for Smoothies" and PROPERLY place the Price and the Quantity variables, i.e., Price on the Vertical axis and Quantity on the horizontal axis;

B. Using Excel's Regression analysis, estimate the simple regression (demand for smoothies). Place the regression output in a separate sheet in the same excel file and label the sheet Reg_Output. Report/answer the following In MS-Word Document

C. Properlyreport your estimated demand equation(MustRound the estimated parameters toTWO decimal pointsand use that forcalculations).

D. What is the R² (report this as a percentage and round the answer to two decimal points). What does this percentage mean and based on the reported R² do you think this regression can reasonably be used for analysis?

E. At the 5% level of significance, does the price have a significant impact on the quantity demanded? How did you determine your answer?

F. How many smoothies do you expect to sell if the price per smoothie is set equal to $4.99 (show your work and round your answer since smoothies are sold in whole units)?

G. All else constant, what is the impact on the quantity demanded if you reduce the price of a smoothie by $1.50 (show your work and round your answer since smoothies are sold in whole units)?

H. Based on the estimated Demand, compute the point price elasticity of demand at a price of $4.99. Is the demand at this price elastic, inelastic or unitary elastic (show your work and round your answer to two decimal points)?

I. With this information, should you increase, decrease, or not change the price, (i.e., from the $4.99 price per smoothie)? How do you justify your recommendation?