Managerial Economics 6th Edition Ch. 5 #9 The Kingston Company hires a consultan
ID: 1192860 • Letter: M
Question
Managerial Economics 6th Edition Ch. 5 #9
The Kingston Company hires a consultant to estimate thedemand function for its product. Using regression analysis, the consultant estimates the demand function to be
Log Q = 2.01 - 0.148 Log P + 0.258 Log Z
where Q is the quantity demanded (in tons) of Kingston's product, P is the price (in dollars per ton) of Kingston's product,and Z isthe price (in dollars per ton) of a rival product.
a. Calculate the price elasticity of demand for Kingston's product.
b. Calculate the cross eslasticity of demand between Kingston's product and the rival product.
c. According to the consultant, R 2 bar = 0.98 and the standard error of estimate is .001. If the number of observation is 94, comment on the goodness of fit of the regression.
Explanation / Answer
Log Q = a + b1 Log P + b2 Log Z
Now as per log-linear demand function analysis here b1 is the price elasticity of Q and b2 is the crossprice elasticity of Q
Log Q = 2.01 - 0.148 Log P + 0.258 Log Z
a) -0.148
b) 0.258
c) R2 means the closeness of the actual data of these 94 observations to the regression model. So here R2 is 98% with a Standard error of 0.001 (which is very less) so goodness of fit is statistically high here.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.