Question

An analyst was asked to predict the gross social benefits of building a public swimming pool in Dryville, which has a population of 50,000 people and a median household income of $40,000. The analyst identified 20 towns in the region that already had public swimming pools. She conducted a telephone interview with the recreation department in each town to find out what fee it charged per visit (FEE) and how many visits it had during the most recent summer season (VISITS). In addition, she was able to find each town’s population (POP) and median household income (INCOME) in the most recent census.

For questions 1-4, use Excel and the data provided to estimate the regression coefficients for the equation

VISITS = a0 + a1*FEE + a2*INCOME + a3*POP

1. What is the estimated intercept coefficient (a0)? (For your answer, do not include a decimal point and do not use commas.)

2. What is the estimated slope coefficient for the FEE variable (a1)? (For your answer, do not include a decimal point and do not use commas.)

3. What is the estimated slope coefficient for the INCOME variable (a2)? (Express your answer as -x.xxx, including a 0 before the decimal point and three digits after the decimal point, and rounding up if necessary. Note the coefficient is negative.)

4. What is the estimated slope coefficient for the POP variable (a3)? (Use the same format for your answer as in question 3. However, the coefficient is positive not negative in this case.)

For problems 5, 6, and 7 use your answers to questions 1-4 in combination with information on Dryville’s population and median household income to calculate the intercept and slope of the inverse demand curve for the Dryville pool and to calculate gross social benefit. The inverse demand curve is written as FEE = b0 + b1*VISITS

5. What is the intercept of the inverse demand curve? (For your answer, include two digits after the decimal point.)

6. What is the slope of the inverse demand curve? (For your answer, include six digits after the decimal point.)

7. What is the estimated gross social benefit of the Dryville public swimming pool project? (Do not include a comma or decimal point in your answer.)

Answer 1