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 Price ($) Advertising Personal Selling

Expenditures ($) Expenditures ($)

January2,5003,80026,800 43,000

February2,2503,700 23,500 39,000

March1,750 3,60017,400 35,000

April1,500 3,50015,300 34,000

May1,0003,20010,400 26,000

June2,5003,20018,400 41,000

July 2,7503,20028,200 40,000

August1,7503,00017,400 33,000

September1,250 2,90012,300 26,000

October3,0002,70029,800 45,000

November2,0002,70020,300 32,000

December2,0002,60019,800 34,000