KAD has estimated the following demand relationship for its product over the last four years, using monthly observations: ln Qt = 4.932- 1.238 ln Pt + 1.524 ln Yt-1 + 0.4865ln Qt-1 (2.54) (1.38) (3.65) (2.87)

R 2= 0.8738

where Q = sales in units, P = price in Rs., Y is income in Rs,000, and the numbers in brackets are t-statistics.

a. Interpret the above model.

b. Make a sales forecast if price is Rs. 9, income last month was Rs. 25,000 and sales last month were 2,981 units.

c. Make a sales forecast for the following month if there is no change in price or income. d. If price is increased by 5 per cent in general terms, estimate the effect on sales, stating any assumptions.