1. The Klein Corporation’s marketing department, using regression analysis, estimates the ﬁrm’s demand function, the result...

1. The Klein Corporation’s marketing department, using regression analysis, estimates the ﬁrm’s demand function, the result being

Q = -104 - 2.1P + 3.2I + 1.5A + 1.6Z

(R² = 0.89) where Q is the quantity demanded of the ﬁrm’s product (in tons), P is the price of the ﬁrm’s product (in dollars per ton), I is per capita income (in dollars), A is the ﬁrm’s advertising expenditure (in thousands of dollars), and Z is the price (in dollars) of a competing product. The regression is based on 200 observations.

a. If I = 5,000, A = 20, and Z = 1,000, what is the Klein Corporation’s demand curve?

b. If P = 500 (and the conditions in part a hold), estimate the quantity demanded of the Klein Corporation’s product.

c. Based on a and b, Calculate the price elasticity of demand, Income elasticity of demand, cross-price elasticity of demand, and Advertising elasticity of demand for the firm’s product and interpret their results.

Expert Solution

Rahul Sunny answered 2 years ago

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