Year Q (millions of lbs) P Beef Per Lb ($) P Pork Per lb ($) Disp...

Year	Q (millions of lbs)	P Beef Per Lb ($)	P Pork Per lb ($)	Disp Inc (millions $)	Pop (millions)
1975	19295	1.9	1.864	517250	182.76
1976	17535	2.312	1.944	566500	185.88
1977	19520	2.208	1.972	708250	189.12
1978	25622.5	1.68	2.072	631500	192.12
1979	26530	1.68	2.128	643500	195.6
1980	27745	1.64	1.776	688250	199.08
1981	29805	1.568	1.732	733000	202.68
1982	28950	1.648	1.916	771250	206.28
1983	26932.5	1.868	2.092	796250	209.88
1984	27592.5	1.892	1.792	843250	213.36
1985	30162.5	1.804	1.884	875000	216.84
1986	31530	1.708	1.916	911000	220.44
1987	31397.5	1.856	1.9	963250	223.8
1988	34122.5	1.668	1.772	1011500	227.04
1989	39107.5	1.592	1.772	1095250	230.28
1990	39987.5	1.732	2.128	1183000	233.16
1991	41775	1.768	2.276	1279750	235.92
1992	43130	1.804	2.06	1365750	238.44
1993	45675	1.892	2.036	1477500	240.84
1994	47185	1.968	2.3	1586000	243.24
1995	48722.5	1.96	2.276	1729250	245.88
1996	49242.5	2.188	1.992	1866000	248.4
1997	51277.5	2.304	2.58	2006250	250.56

Assignment 4.2 Beef Demand Model
A meat packing company hires you to study the demand for beef. The attached data are
supplied. Complete the following tasks, then open the quiz “4.2 Beef Demand” and
complete it.
1. Estimate the demand for beef as a function of the price of beef, the price of pork,
disposable income, and population. Label this as Model 1. Which independent
variables have a significant impact on the demand for beef?
2. The coefficient for the price of beef indicates that a one-dollar increase in price
leads to how large a decrease in quantity demanded?
3. Estimate the demand for beef as a function of the price of beef, the price of pork,
and per capita disposable income (per capita disposable income=[disposable
income/population]; you have to create this variable from the data). Label this as
Model 2. Which independent variables have a significant impact on the demand
for beef?
4. Which Model fits the data better? Comment on why, using statistics from the
regression model.
5. The meat packing company gives you the following assumptions: Price of
beef=$2; price of pork=$2.50; disposable income=$1,000,000; and
population=225. Given this information, use model 1 to complete the following:
a. Estimate of beef demand and a 95% confidence interval around this
estimate.
b. Estimate total revenue
c. Estimate the following elasticities: Price elasticity, Cross elasticity (that
is, elasticity with respect to Pork price), income elasticity, and population
elasticity.
d. Should the meat packing company increase or decrease the price of beef?
Why or why not?

Solutions

Expert Solution

Multiple R	0.99654
R Square	0.993091
Adjusted R Square	0.991556
Standard Error	936.983
Observations	23

ANOVA
	df	SS	MS	F	Significance F
Regression	4	2.27E+09	5.68E+08	646.8264	3.56E-19
Residual	18	15802869	877937.2
Total	22	2.29E+09

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	22387.22	8795.19	2.545394	0.020294	3909.212	40865.23	3909.212	40865.23
P Beef Per Lb ($)	-12804.2	1369.294	-9.35094	2.48E-08	-15681	-9927.4	-15681	-9927.4
P Pork Per lb ($)	1608.836	1361.079	1.182029	0.252575	-1250.69	4468.358	-1250.69	4468.358
Disp Inc (millions $)	0.022907	0.002125	10.78046	2.78E-09	0.018443	0.027371	0.018443	0.027371
Pop (millions)	36.60052	37.47358	0.976702	0.341662	-42.1285	115.3296	-42.1285	115.3296

1) Model1

Q= 22387.22-12804.2*price of beef+1608.836 *price of pork+0.022907 Disp income+ 36.60052Pop

Price of pork has significant effect

2) The coefficient for the price of beef indicates that a one-dollar increase in price
leads to 12804.2 decrease in quantity demanded.

SUMMARY OUTPUT

Regression Statistics
Multiple R	0.994732
R Square	0.989491
Adjusted R Square	0.987832
Standard Error	1124.769
Observations	23

ANOVA
	df	SS	MS	F	Significance F
Regression	3	2.26E+09	7.54E+08	596.3294	5.76E-19
Residual	19	24036994	1265105
Total	22	2.29E+09

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	25433.41	2832.654	8.978653	2.9E-08	19504.6	31362.23	19504.6	31362.23
P Beef Per Lb ($)	-15007.6	1245.063	-12.0537	2.4E-10	-17613.6	-12401.7	-17613.6	-12401.7
P Pork Per lb ($)	941.0356	1579.913	0.595625	0.558455	-2365.76	4247.832	-2365.76	4247.832
per capita income	7.363545	0.217049	33.92568	1.82E-18	6.909256	7.817834	6.909256	7.817834

Model 2-

Q= 25433.41-15007.6*price of beef+941.0356 *price of pork+ 7.363545Per capita income

4) Model 2 fits the data better as the number of variables are consolidated and brings out a better estimate as not single variable has significant effect on the quantity demanded for beef.

As the p values for model two close to each other except for price of pork so we can remove it

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Year Price of Fish Quantity of Fish Price of Pork Quantity of Pork Price of Beef...

Year Price of Fish Quantity of Fish Price of Pork Quantity of Pork Price of Beef Quantity of Beef 2006 $10 200 $11 225 $12 275 2007 11 325 9 200 13 375 2008 12 500 10 325 16 475 e. Calculate Real GDP for 2007 and 2008 using the chain-weighted method. f. Calculate the GDP deflator and inflation using Real GDP from part e.

Assume the market for beef is described by the following demand and supply functions: Q(p) =...

Assume the market for beef is described by the following demand and supply functions: Q(p) = -6 + 6P…………………………………(1) Q(p) = 50 – 2P^2…………………………………(2) (a)Which of the two equations is the demand curve? How did you know? (b)Find the equilibrium price ($) and equilibrium quantity transacted (000 lb.)in this market. (c)Determine the price elasticity of demand at equilibrium for this product. (d)Suppose the adoption of a new technology allows this beef producer to increase supply by 4, how will this...

Assume the market for beef is described by the following demand and supply functions: Q(p) =...

Assume the market for beef is described by the following demand and supply functions: Q(p) = -6 + 6p ………………………………… Q(p) = 50 – 2P^2 ………………………………… (a)Which of the two equations is the demand curve? How did you know? (b)Find the equilibrium price ($) and equilibrium quantity transacted (000 lb.)in this market. (c)Determine the price elasticity of demand at equilibrium for this product. (d)Suppose the adoption of a new technology allows this beef producer to increase supply by 4, how...

Assume the market for beef is described by the following demand and supply functions: Q(p) =...

Assume the market for beef is described by the following demand and supply functions: Q(p) = -6 + 6P…………………………………(1) 2 Q(p) = 50 – 2P…………………………………(2) (a)Which of the two equations is the demand curve? How did you know? (b)Find the equilibrium price ($) and equilibrium quantity transacted (000 lb.)in this market. (c)Determine the price elasticity of demand at equilibrium for this product. (d)Suppose the adoption of a new technology allows this beef producer to increase supply by 4, how will...

Suppose that demand for a cigarettes (in millions of cartons) is given by Q=20 - ½ *P. Supply of cigarettes is given by Q=P.

Suppose that demand for a cigarettes (in millions of cartons) is given by Q=20 - ½ *P. Supply of cigarettes is given by Q=P. There is a negative consumption externality from cigarettes, in the amount of $2 per box.a. Draw the market for cigarettes, labeling the private marginal cost (PMC), social marginal cost (SMC), private marginal benefit (PMB) and social marginal benefit (SMB).b. What quantity of the good is consumed under the private market equilibrium?c. What is the socially optimal...

the demand for beef is P = 150 - 3Q where price is price per pound...

the demand for beef is P = 150 - 3Q where price is price per pound in cents and Q is quantity demanded per year in hundreds of pounds The supply curve is P = 5Q If a price floor of 50 cents per pound is imposed what are the new consumer and producer surplus?

1. Beef Co. in one year is expected to trade at $23 per share. And is...

1. Beef Co. in one year is expected to trade at $23 per share. And is expected to pay a dividend of 15 cents at the end of the year. If investments with equivalent risk have an expected return of 9%, what is the most you should pay for a Beef Co. stock today? 2. Bent CO. at the end of the year will have EPS of $7 and if the firm has a cost of capital of 12%: B)...

A monopolist faces the demand curve P =11 Q, where P is measured in dollars per...

A monopolist faces the demand curve P =11 Q, where P is measured in dollars per unit and Q in thousands of units. The monopolist has a constant average cost of $6 per unit. Answer the following questions, showing all workings. a) Calculate the monopolists profit-maximizing price and quantity. Calculate the monopolists profit. b) Draw the average and marginal revenue curves and the average and marginal cost curves for the monopolist including the area of profits (label the diagram accurately...

Let p and q be the propositions p:You drive over 65 miles per hour. q: You...

Let p and q be the propositions p:You drive over 65 miles per hour. q: You get a speeding ticket. Write these propositions using p and q and logical connectives. a) You do not drive over 65 miles per hour. b) You drive over 65 miles per hour, but you do not geta 1 speeding ticket. c) You will get a speeding ticket if you drive over 65 miles per hour. d) If you do not drive over 65 miles...

Suppose that the demand for a special kind of silica is given by Q = 55 – 0.5P, where Q is in tons of silica per day and P is the price per ton.

Suppose that the demand for a special kind of silica is given by Q = 55 – 0.5P, where Q is in tons of silica per day and P is the price per ton. This special kind of silica is produced by Thorpe Industries (a monopolist) that has a constant marginal and average total cost of $10 per ton. [up to 6 points]Derive the inverse demand and marginal revenue curves faced by Thorpe Industries.Equate marginal cost and marginal revenue to...

Subjects