Question

A linear industry demand function of the form: Q=a+bP+cM+dPr was estimated using regression analysis. The results of this estimation are as follows:

Dependant Variable:	Q	R-Square	F-Ratio	P=Value on F
Observations:	32	0.9419	151.32	0.0001

Variable	Parameter Estimate	Standard Error	T-Ratio	P-Value
Intercept	11408.60	2256.32	5.06	0.0001
P	-432.59	107.27	-4.03	0.0004
M	-0.0885	0.02341	-3.78	0.0008
PR	126.35	71.77	1.76	0.0892

1. What do the estimated parameters for b, c and d imply about P (the product’s price), M (consumer income) and PR the related products price.  (b,c and d all had little hats above the letter)
2. Are the parameter estimates a,b,c and d statistically significant at the 10 percent level of significance? At the 5%level? (b,c and d all had little hats above the letter)
3. Using the values P = $48, M = $62,450, and P_R = $250, calculate estimates of (remember to calculate Q at these prices and income.)

   (1) The price elasticity of demand (Ê).

   (2) The income elasticity of demand ( Êm).

   (3) The cross-price elasticity (Êxr ).

Answer 1