Part 1. Demand Elasticity (10 points) The following is a typical regression outp
ID: 3354213 • Letter: P
Question
Part 1. Demand Elasticity (10 points)
The following is a typical regression output from Excel Spreadsheet:
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.50
R Square
0.25
Adjusted R Square
0.17
Standard Error
165.83
Observations
21.00
ANOVA
df
SS
MS
F
Significance F
Regression
2.00
167135.65
83567.83
3.04
0.04
Residual
18.00
495004.09
27500.23
Total
20.00
662139.75
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Lower 99.0%
Upper 99.0%
Intercept
14853.98
2016.40
7.37
0.00
10617.69
19090.27
9049.90
20658.06
OWN PRICE
-49.31
20.72
-2.38
0.03
-92.85
-5.77
-108.96
10.34
WINE PRICE
105.82
49.04
2.16
0.04
3.51
215.15
43.97
255.61
Assume that your consultant was charged with estimating a demand equation for your company's product, COOL BEER. While providing you with the above regression output, she explained that the dependent variable used was the quantity sold (Q) of COOL BEER and independent variables used were OWN PRICE (P) of COOL BEER and WINE PRICE (Y). Concentrating on the yellow-highlighted area, please answer the following questions.
1. What is the estimated demand equation for COOL BEER? (1 point)
2. Which coefficients are/is significant at the 5% significance level? (1 point)
3. What is the quantity demanded of COOL BEER when OWN PRICE = $520 and WINE PRICE = $120? (1 point)
4. What is the own price elasticity of demand when OWN PRICE = $520 and WINE PRICE = $120? Is it elastic or inelastic? (2 points)
5. What is the cross-price elasticity of demand when OWN PRICE = $520 and WINE PRICE = $120? (1 point)
6. Is COOL BEER a complement or a substitute with WINE? (2 points)
7. Do you think this is a good/bad demand equation for you to use? State the reasons for and against your decision to use or not to use it. (2 points)
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.50
R Square
0.25
Adjusted R Square
0.17
Standard Error
165.83
Observations
21.00
ANOVA
df
SS
MS
F
Significance F
Regression
2.00
167135.65
83567.83
3.04
0.04
Residual
18.00
495004.09
27500.23
Total
20.00
662139.75
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Lower 99.0%
Upper 99.0%
Intercept
14853.98
2016.40
7.37
0.00
10617.69
19090.27
9049.90
20658.06
OWN PRICE
-49.31
20.72
-2.38
0.03
-92.85
-5.77
-108.96
10.34
WINE PRICE
105.82
49.04
2.16
0.04
3.51
215.15
43.97
255.61
Explanation / Answer
1. Estimated Demand equation
Quantity sold (Q) of COOL BEER = 14853.98 - 49.31 * OWN Price + 105.82 * Wine Price
2. since P value of OWN Price & wine Price both are below 0.05 we can say that all the coefficient coefficients (i.e. intercept , OWN price and Wine Price) are significant at the 5% significance level
3.quantity demanded of COOL BEER when OWN PRICE = $520 and WINE PRICE = $120
Quantity sold (Q) of COOL BEER = 14853.98 - 49.31 * OWN Price + 105.82 * Wine Price
=1911.18
4. Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
= [(1911.18-14853.98)/(14853.98 ) ] / [ 520+120] = -0.001361462
As per the Chegg policy we are supposed to answer first for sub parts of a question and so here I have answerd all the required ones. If you need the ans for the rest kindly post the rest sperately. Hope you understand.
Hope the above answer has helped you in understanding the proble. Please upvote the ans if it has really helped you. Good Luck!!
2. since P value of OWN Price & wine Price both are below 0.05 we can say that all the coefficient coefficients (i.e. intercept , OWN price and Wine Price) are significant at the 5% significance level
3.quantity demanded of COOL BEER when OWN PRICE = $520 and WINE PRICE = $120
Quantity sold (Q) of COOL BEER = 14853.98 - 49.31 * OWN Price + 105.82 * Wine Price
Quantity sold (Q) of COOL BEER = 14853.98 - 49.31 * 520 + 105.82 * 120=1911.18
4. Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
= [(1911.18-14853.98)/(14853.98 ) ] / [ 520+120] = -0.001361462
As per the Chegg policy we are supposed to answer first for sub parts of a question and so here I have answerd all the required ones. If you need the ans for the rest kindly post the rest sperately. Hope you understand.
Hope the above answer has helped you in understanding the proble. Please upvote the ans if it has really helped you. Good Luck!!