Question

A firm specializes in leasing apartments to students attending a nearby college. The firm has several apartment blocks (each block has 100 apartments) in different locations and distances from the campus. The firm has estimated a regression model to understand the effect of three variables on the demand for its apartments. The results obtained from the regression model is provided below.

Regression Results

	Coefficients	Standard Error	t Stat	P-value
Intercept	108.96	15.55	7.01	0.00
P	-0.10	0.03	-3.33	0.004
B	3.63	1.34	2.72	0.026
D	-4.83	0.89	-5.43	0.001

where:

P is the rental price in dollars for the apartments

B is the number of scheduled public bus service from apartment building to campus per hour

D is distance (in miles) from each apartment building to campus

(a). Interpret the coefficients and statistical significance of each of the three variables (P, B, and D) [3 marks]

(b). Compute the price elasticity of demand for rental units priced at $375, located 2 miles from campus and with a schedule of 6 bus services per hour? [2 marks].

(c). The firm mangers are considering introducing their own bus service in apartment blocks under-served by public transportation. How will the regression results be of use, and what other factors will the firm need to consider when making this decision for the firm to maximize profits? [2 marks]

Answer 1