Question
The following questions refer to this regression equation (standard errors in parentheses), Q = 8,500 - 10 P + 5 A + 4 Px +
The following questions refer to this regression equation (standard errors in parentheses),
Q = 8,500 - 10 P + 5 A + 4 Px + 0.05 I
(1,732) (2.29) (1.36) (1.75) (0.15)
R2 = 0.65, N = 120, F = 35.25, Standard error of estimate = 34.3
Q = Quantity demanded
P = Price = 900
A = Advertising expenditures, in thousands = 50
PX = price of competitor's good = 600
I = average monthly income = 4,500
a. Calculate the elasticity for each variable and briefly comment on what information this gives you in each case.
b. Calculate t-statistics for each variable and explain what this tells you.
c. How would you evaluate the quality of this equation overall? Do you have any concerns? Explain.
d. Should this firm be concerned if macroeconomic forecasters predict a recession? Explain.
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