Question
. Your company, which specializes in equipment for the popular activity combining equine sports and ice hockey (Horse-Puckey), has the following demand function: Q =
. Your company, which specializes in equipment for the popular activity combining equine sports and ice hockey (Horse-Puckey), has the following demand function:
Q = a + bP + cM + dR
where Q is the quantity demanded of Horse-Puckey hockey pucks, P is the price of that product, M is consumer income, and R is the price of a related product.The regression results are:
Adjusted R Square 0.6883
Independent Variables Coefficients Standard Error t Stat P-value
Intercept 9975.02 97.02 102.81 6.64E-42
P -8.537 3.193 -2.674 0.012
M 0.0058 0.002 3.812 0.001
R -3.65 1.427 -2.556 0.016
a. Discuss whether you think these regression results will generate good sales estimates for Horse-Puckey.
Now assume that the income is $58,952, the price of the related good is $13.50, and Horse-Puckey chooses to set the price of its product at $6.38.
b. What is the estimated number of units sold given the data above? (round to nearest unit; no decimals)
c. What are the values for the own-price, income, and cross-price elasticities?
d. If P increases by 8%, what would happen (in percentage terms) to quantity demanded?
e. If M decreases by 2%, what would happen (in percentage terms) to quantity demanded?
f. If R increases by 3%, what would happen (in percentage terms) to quantity demanded?
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