MBA 2004

Managerial Economics

Module 2Demand Theory and Estimation

Activity 4Case 3

Using SPSS, MS Excel or other statistical software package, run the given data and answer the following in MS Word.

Assume that Electronix, Inc., a small startup company that distributes a particular business machine, has the following monthly data on unit sales (Q), price (P), advertising expenditures (AD), and personal selling expenditures (PSE) over the past year.

If a linear relation between unit sales, price, advertising, and personal selling expenditures is hypothesized, the regression equation takes the following form:

where is the number of units sold, P is the average price per month, D is advertising expenditures, PSE is personal selling expenditures, and is a random disturbance term - all measured on a monthly basis over the past year.

A.Present the computer results of regression.

B.Estimate the regression equation of on the explanatory variables.

C.Check for consistency in the relationship between quantity demand and the three explanatory variables as postulated in demand theory by indicating the change in the quantity demanded of the commodity for each unit change in the explanatory variables.

D.Find and interpret the adjusted and the unadjusted coefficient of determination.

E.Test at the 5% level for the overall statistical significance of the regression. Interpret the result.

F.Test at the 5% level for the statistical significance of the slope parameters. Interpret the result.

G.Specify the final demand model.

H.Estimate the confidence intervals for if P = $2,500, AD = $30,000 and PSE = $50,000.

Interpret your forecast. (Tip: SEE provides a helpful means for estimating confidence intervals)

Show all results in two decimal places.

Month Units Sales Advertising Personal Selling

Price ($) Expenditures ($) Expenditures ($)

January2,5003,80026,80043,000

February2,2503,70023,50039,000

March1,7503,60017,40035,000

April1,5003,50015,30034,000

May1,0003,20010,40026,000

June2,5003,20018,40041,000

July2,7503,20028,20040,000

August1,7503,00017,40033,000

September1,2502,90012,30026,000

October3,0002,70029,80045,000

November2,0002,70020,30032,000

December2,0002,60019,80034,000