Demand can be estimated with experimental data, time-series data, or cross-section data. Sara Lee Corporation generates experimental data in test stores where the effect of an NFL-licensed Carolina Panthers logo on Champion sweatshirt sales can be carefully monitored. Demand forcasts usually rely on time-series data. In contrast, cross-section data appears in Table 2. Soft drink consumption in cans per capita per year is related to sic-pack price, income per capita, and mean temperature across the 48 contiguous states in the United States.
1. Write the theoretical demand model for soft drinks, stating the expected relationship between the quantity demanded and its determinants.
2. Estimate the demand for soft drinks using the data in Table 2 and write the equation for the estimated model.
3. Interpret the coefficients of the determinants of soft drinks.
4. Which determinants are statistically significant at the conventional level of significance of ex= .05?
5. a) Calculate the price elasticity demand for soft drinks in Tennessee using the price in Tennessee and average per capita quantity.
b) Should the industry raise or lower price in order to increase revenue?
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