Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 4, Problem 2E
(a)
To determine
To estimate: the
(b)
To determine
The coefficient of determination. Significance of the price variable by performing t-test.
(c)
To determine
Price
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
An economist believes that price, x, (in dollars) is the biggest factor affecting quantity
sold, y. To support his argument, he collected data on price and quantity sold from a
sample of 29 stores, selling the same product, and generated the regression output in
Excel.
The regression equation is reported as
y =
and the correlation coefficient r = - 0.333.
9.45x + 20.86
What proportion of the variation in quantity sold y can be explained by the variation in
price?
R² =
%
Report answer as a percentage accurate to one decimal place.
The Pilot Pen Company has decided to use 15 test markets to examine the sensitivity of demand for its new product to various prices, as shown in the following table. Advertising effort was identical in each market. Each market had approximately the same level of business activity and population.
Complete the following worksheet and then estimate the demand function for Pilot's new pen using a linear regression model.
Test Market
Price Charged
Quantity Sold
(cents)
(Thousands of Pens)
ii
xixi
yiyi
xixiyiyi
xi2xi2
yi2yi2
1
50
20
1,000
2,500
400
2
50
21
1,050
2,500
441
3
55
19
1,045
3,025
361
4
55
19.5
1,072.5
3,025
380.25
5
60
20.5
1,230
3,600
420.25
6
60
19
1,140
3,600
361
7
65
15.5
1,007.5
4,225
240.25
8
65
15
975
4,225
225
9
70
14.5
1,015
4,900
210.25
10
70
15.5
1,085
4,900
240.25
11
80
13
1,040
6,400
169
12
80
14
1,120
6,400
196
13
90
11.5
1,035
8,100
132.25
14
90
11
990
8,100
121
15
40
17
680
1,600
289
Total
980
246
?…
Your company just became international by offering its products in both the United States and Canada. Experts in your analytics
department believe that tastes for your product differ in those two countries, and have carefully collected data on prices and quantity
demanded in both countries. They then present you with the results of two regressions, one for each country, as follows:
Log Price regressed on Log Quantity (United States):
Standard
Coefficients
Error
t Stat
P-value
Lower 95%
Upper 95 %
1.67605E-
Intercept
52.75573994 10.81051303
4.88040363
31.48708283
74.0239705
06
| Log Quantity
-5.382266173 1.170584108 -4.597932039 6.15253E-06 -7.685279168 -3.079253177
Log Price regressed on Log Quantity (Canada):
Standard
Error
Coefficients
22.8707593 10.64507785
-2.095788278 | 1.152727409 -1.818112644 0.069981782
t Stat
2.148482109
Upper 95%
43.8139384
P-value
Lower 95%
Intercept
Log Quantity
0.032425603
1.9275802
-4.363669916
0.17209336
Assume you have adequate statistical significance…
Chapter 4 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Knowledge Booster
Similar questions
- Consider a linear demand model to explain the quantity demanded for a product: where Q = quantity sold, Price = price of the product, Income = purchaser’s income, Advert = advertising. The following data was collected in year 2018. The company spends millions of money in advertisements. The company wants to know how advertisement as well how other factors affect the quantity of units sold. The results are as follows: Model Summary R 0.986 R2 0.973 Standard error of estimate 6.9872 Variables Coefficient Std error Sig Constant 205.862 19.354 0.000 Price -12.242 1.407 0.000 Income 1.414 0.422 0.015 Advert -3,344 1.798 0.112 Interpret and write a report based on the results obtained above.arrow_forwardThe following regression was run using a sample of 587 women living in Kenya. The variable goats is the number of goats the woman owns and grant is whether the woman received $ 500 in cash (in local currency equivalent) two years ago from the charity GiveDirectly, or not. The charity gives grants randomly to poor people in Kenya, of $ 500. goats = 6.42 +0.80 grant R2=0.35 1. What is the estimated coefficient for grant? What does it mean, in words? (Be specific, referring to numbers.) 2. Suppose one woman in the sample, Wangari, did not receive a grant. What is her predicted number of goats? Please do fast ASAP fastarrow_forwardUsing a sample from a population of adults, to estimate the effects of education on health, we run the following regression: hypertension, = a + Beduc; + YX¡ + Ei where hypertension is a dummy variable equals one if a person suffers from hypertension and zero otherwise, educ is years of schooling, and X is a vector of demographic variables such as age, gender, and ethnicity. (a) Show that educ in the regression above is likely to be endogenous and discuss the consequences of this on the OLS estimators. (b) Evaluate whether a government policy that requires children to complete twelve years of schooling is a good instrumental variable for educ.arrow_forward
- ABC, Inc., sells tea products to various customers. In recent years, profits have been declining. The CFO of the company investigated the reasons for the profit decline and performed regression analysis for sales and costs. She determined that sales depend on product price, delivery speed, customer services, and marketing expenses. She also determined that total costs consist of variable costs of $25 per unit and fixed costs of $56,000. Marketing expenses have a coefficient of determination of 75% related sales. List two advantages and two limitations of regression analysis.arrow_forwardThe estimated regression equation describing the relationship between the price (P) charged by a monopolist for his product and the quantity (Q) of the product purchased by consumers is given by: Q = 500,000 - 100 P. Results of a t-test reject the null hypothesis for the coefficient multiplying price. The correct interpretation of the B₁ coefficient (equal to -100) is: A) when price is equal to zero, then the average quantity sold is equal to 100 B) an increase in price by one dollar on average is associated with a 100 unit decrease in quantity C) a 1% increase in price is associated with a 100% decrease in quantity OD) an increase in quantity by one unit on average is associated with a $100 decrease in pricearrow_forwardMita, the manufacturer of copiers, has been spending increasing amounts of money on radio and television advertising in recent years. An analyst employed by Mita wanted to estimate a simple linear regression of the company's annual copier sales versus advertising dollars. Th regression results included SSE = 12593 and SSR = 87663. What is the coefficient of determination for this regression? 0.874 0.935 0.144 0.126arrow_forward
- A regression of average weekly earnings (AWE, measured in dollars) on age(measured in years) using a random sample of college-educated full-timeworkers aged 25–65 yields the following: AWE = 696.7 + 9.6 X Age, R2 = 0.023, SER = 624.1.a. Explain what the coefficient values 696.7 and 9.6 mean.b. The standard error of the regression (SER) is 624.1. What are the unitsof measurement for the SER? (Dollars? Years? Or is SER unit-free?)c. The regression R2 is 0.023. What are the units of measurement for theR2? (Dollars? Years? Or is R2 unit-free?)d. What does the regression predict will be the earnings for a 25-year-oldworker? For a 45-year-old worker?e. Will the regression give reliable predictions for a 99-year-old worker?Why or why not?f. Given what you know about the distribution of earnings, do youthink it is plausible that the distribution of errors in the regressionis normal? (Hint: Do you think that the distribution is symmetric orskewed? What is the smallest value of earnings,…arrow_forwardThe controller of Chittenango Chain Company believes that the identification of the variable and fixed components of the firm’s costs will enable the firm to make better planning and control decisions. Among the costs the controller is concerned about is the behavior of indirect-materials cost. She believes there is a correlation between machine hours and the amount of indirect materials used.A member of the controller’s staff has suggested that least-squares regression be used to determine the cost behavior of indirect materials. The regression equation shown below was developed from 40 pairs of observations.S = $200 + $9H where S = Total monthly cost of indirect materials H = Machine hours per month The estimated cost of indirect materials if 900 machine hours are to be used during a month is $8,300 (Assume that 900 falls within the relevant range for this cost equation.) The high and low activity levels during the past four years, as measured by machine hours, occurred…arrow_forward1. Data were collected on sales of mountain bikes in 30 sporting goods stores. The regression model was y = total sales (thousands of dollars), *₁ = display floor space (square meters), 2 = competitors' advertising expenditures (thousands of dollars), and x3 = advertised price (dollars per unit). A summary of the regression output is below. Variable (nickname) Intercept FloorSpace Competing Ads Price Coefficient 1225.44 11.52 -6.935 -0.1496 (a) Write the fitted regression equation. Round your coefficient Competing Ads to 3 decimal places, coefficient Price to 4 decimal places, and other values to 2 decimal places. (b-1) Put an X in the correct answer circle. The coefficient of FloorSpace says that each additional square foot of floor space... O adds about 11.52 to sales (in thousands of dollars). takes away 11.52 from sales (in thousands of dollars). O adds about 6.935 to sales (in thousands of dollars). takes away 0.1496 from sales (in thousands of dollars). (b-2) Put an X in the…arrow_forward
- A guidance counselor wants to determine if there is a relationship between a student's number of absences, x, and their grade point average (GPA), y. The data that were collected are displayed in the scatterplot and the least-squares regression line was calculated. One student with 2 absences has a GPA of 1.8. This point is circled on the graph. GPA and Absences 4.8 4.4 4.0 3.6 3.2 2.8 2.4 2.0 1.6 4 6 8 10 12 14 16 Absences (Days) What effect does the circled point have on the standard deviation of the residuals? This point will increase the value of the standard deviation of the residuals because it has a large positive residual. This point will increase the value of the standard deviation of the residuals because it has a large negative residual. This point will not affect the value of the standard deviation of the residuals because it has a large positive residual. This point will decrease the value of the standard deviation of the residuals because it has a large negative residual.…arrow_forwardRefrigerator prices are affected by characteristics such as whether or not the refrigerator is on sale, whether or not it is listed as a Sub- Zero brand, the number of doors (one door or two doors), and the placement of the freezer compartment (top, side, or bottom). The table below shows the regression output from a regression model using the natural log of price as the dependent variable. The model was developed by the Bureau of Labor Statistics. Variable Coefficient Standard Error t Statistic 5.4841 Intercept 0.13081 41.92 Sale price -0.0733 0.0234 -3.13 Sub-Zero brand 1.1196 0.1462 7.66 0.06956 0.005351 13.00 Total capacity (in cubic feet) Two-door, freezer on bottom Two-door, side freezer 0.04657 0.08085 0.58 Two-door, freezer on top 0.03596 -9.55 Base -0.3432 -0.7096 -0.8820 One door with freezer 0.1310 -5.42 -5.92 One door, no freezer 0.1491 (a) Write the regression model, being careful to exclude the base indicator variable. (Negative amounts should be indicated by a minus…arrow_forwardA finance manager employed by an automobile dealership believes that the number of cars sold in his local market can be predicted by the interest rate charged for a loan. Interest Rate (%) Number of Cars Sold (100s) 3 10 5 7 6 5 8 2 The finance manager performed a regression analysis of the number of cars sold and interest rates using the sample of data above. Shown below is a portion of the regression output. Regression Statistics Multiple R 0.998868 R2 0.997738 Coefficient Intercept 14.88462 Interest Rate -1.61538 2. Is interest rate charged for a loan the most important factor to be considered in predicting future car sales? Explain reasoning.The dealership's vice-president of marketing has requested a sales forecast at the prevailing interest rate of 7%. 3. As finance manager, what reasons would you convey to the vice-president in recommending this forecasting model? 4. Is the prediction of car sales…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning