Quantitative%20Demand%20Analysis - Quantitative Demand...

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Quantitative Demand Analysis In Class Exercise Economics 419 – Maymester 2010 You believe the demand for your product (X) is linear, dependent upon the price of your good (P X ), the price of good Y (P Y ), the price of good Z (P Z ), average household income (I) in your market, and the level of advertising expenditures (A). I.e., the true relationship is Q X = α 0 + α 1 P X + α 2 P Y + α 3 P Z + α 4 I + α 5 A + ε Here ε is an error with expected value of zero. Statisticians use data available to the firm and give you the estimated equation (standard errors of each parameter estimate are included in parentheses below the estimate): Q X = 1500.0 – 2.50P X + 0.60P Y – 0.80P Z + 0.024I + 0.042A (625.2) (1.05) (0.21) (0.08) (0.011) (0.018) R 2 = 0.86 F = 31.6 Your experts assure you that the overall regression provides a good fit. The price you are currently charging P X = $800. The firm that produces good Y is charging P Y = 600. The price good Z is P Z = 200. Average income of consumers in your market I = 40,000.
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This note was uploaded on 02/06/2011 for the course ECON 415 taught by Professor Holland during the Summer '09 term at Purdue.

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Quantitative%20Demand%20Analysis - Quantitative Demand...

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