Question

Given the weekly price and quantity (Q and P) data for Cool Stuff ice cream over the past 12 weeks and the price of another ice-cream flavor (Po) as: Q 84 82 85 83 82 84 87 81 82 79 82 78 P 8.50 9.00 8.75 9.25 9.50 9.25 8.25 10.00 10.00 10.50 9.50 10.25 Po 5.25 6.00 6.00 6.50 6.25 6.25 5.25 7.00 7.25 7.25 6.75 7.25

a. Use excel regression to estimate the weekly demand for Cool Stuff ice-cream (attach the output of the regression estimate (Hint: Access in excel: Data, Data Analysis, and use the regression command).

b. Are the coefficients on the two prices statistically significantly different from zero at the 5% significance level? How do you know?

c. What the R2?

d. Explain what R2 means.

Answer 1

B)

Ho: coefficient =0 Ha: coefficient != 0

At 5% los, there is 2-t rule of thumb, i.e. if |t-statistics| is greater than 2 then it is significant

|t-statistics| for P = |-2.991|= 2.991 (>2) => P is significant

|t-statistics| for Po = |1.1648|= 1.164 (<2) => Po is insignificant.

We can also look for P- value

for two sided test:--

if p-value > 0.05/2 =0.025 => accept the null hypothesis => insignificant oefficient

Since p-value of Po = 0.27 (>0.025) => insignificant

if p-value < 0.05/2 =0.025 => reject the null hypothesis => significant oefficient

Since p-value of P = 0.015 (<0.025) => significant

C)

R2 = 0.84

D)

R2 means 84% variation in the demand of cool stuff ice-cream is explained by its price P and price of another flavor Po