Question asked in two parts. Please help with the bolded questions. The
a) Solve the two simultaneous equations to show how Q and P depend on u and v.
b) Derive the means of P and Q.
c) Derive the variance of P, the variance of Q, and the covariance between Q and P.
d) A random sample of observations of (Qi, Pi) is collected, and Q is regressed on Pi. (That
is, Qi is the regressand, and Pi is the regressor.) Suppose the sample is very large
i) Use your answers to (b) and (c) to derive values of the regression coefficient.
[Hint: Use Equations (4.7) and (4.8) in Stock and Watson’s book.]
ii) A researcher uses the slope of this regression as an estimate of the slope of the demand function (β1). Is the estimated slope too large or too small? (Hint: Remember that demand
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- You are considering entry into a market in which there is currently only one producer (incumbent). If you enter, the incumbent can take one of two strategies, price low or price high. If he prices high, then you expect a $60K profit per year. If he prices low, then you expect $20K loss per year. You should enter if you believe demand is inelastic. you believe the probability that the incumbent will price low is greater than 0.75. you believe the probability that the incumbent will price low is less than 0.75. you believe the market size is growing.arrow_forwardInterpret the coefficients and calculate the price elasticity of soft drink demand.arrow_forward
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
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