Question
Your company, which specializes in porcine hygiene products (HogWash), has the following demand function: Q = a + bP + cM + dR where Q
Your company, which specializes in porcine hygiene products (HogWash), has the following demand function:
Q = a + bP + cM + dR
where Q is the quantity demanded of HogWash's most popular soap for pigs, 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 | 0.8300 | |||
Independent Variables | Coefficients | Standard Error | t Stat | P-value |
Intercept | 10,622.29 | 67.06 | 158.40 | 6.73E-48 |
P | -9.741 | 2.157 | -4.516 | 0.000 |
M | -0.0053 | 0.001 | -3.862 | 0.001 |
R | 2.15 | 0.959 | 2.238 | 0.032 |
- Discuss whether you think these regression results will generate good sales estimates for HogWash.
Now assume that the income is $58,717, the price of the related good is $9.35, and HogWash chooses to set the price of its product at $12.75.
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 5%, what would happen (in percentage terms) to quantity demanded?
e. If M increases by 3%, what would happen (in percentage terms) to quantity demanded?
f. If R decreases by 4%, what would happen (in percentage terms) to quantity demanded?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started