In: Economics
You work for Mut the Custard, a frozen custard company. You’ve collected data on monthly sales (S, number of regular-sized frozen custards per month) the price of your regular-sized frozen custard (P, in dollars), and the population size in the different cities in which your company operates (N, number of people; you currently only have one establishment in each city). You estimate the following regression model: S = a + bP + cN. In your regressions, you usually look for a 10%-or-better level of confidence.
a. What signs do you expect for a, b, and c?
b. Your regression yields the following results:
Adjusted R Square |
0.777 |
|||
Independent Variables |
Coefficients |
Standard Error |
t Stat |
P-value |
Intercept |
7056 |
1040 |
6.738 |
0.00106 |
P |
-649.06 |
126.90 |
-5.115 |
0.00372 |
N |
0.0028 |
0.0034 |
0.812 |
0.45380 |
Interpret what these coefficients mean.
c. Does price have a statistically significant effect on sales?
d. Does population have a statistically significant effect on sales?
e. What portion of the total variation in sales remains unexplained?
f. Mut the Custard is considering selling in a new city, where the population is 85,000, and setting its regular-sized frozen custard price at $7.99. What level of monthly sales would you expect in this new city (rounded to the nearest unit)?