The neoclassical economic theory behind supply functions holds that the price of a commodity is a direct function of the quantity available for sale. A study by the Quantitative Decision Analysis Division in your organization finds the following supply function

= 29.648 + 1.156Q and the preliminary computations shown in the table based on n = 12 observations.

a. As part of your report to the Director of Analysis you must test the correlation coefficient for a significant linear relationship at the 5% level.

b. Does your report change if α is set equal to 1%?

c. You are to provide a 90% interval estimate for a single observation of price if the Q  = 40.

What are your results and how do you interpret these results?

Transcribed Image Text:

P= 29.648+1.156Q