1. Wilpen Company, a price-setting firm produces nearly 80% of all tennis balls
ID: 2505844 • Letter: 1
Question
1. Wilpen Company, a price-setting firm produces nearly 80% of all tennis balls purchased in the United States. Wilpen estimates the U.S. demand for its tennis balls by using the following linear specification:
Q = a + bP + cM + dPR
Where Q is the number of cans of tennis balls sold quarterly, P is the wholesale price Wilpen charges for a can of tennis balls, M is the consumers
Discuss the statistical significance of the parameter estimates and using the p-values. Are the signs of and consistent with the theory of demand? Wilpen plans to charge a wholesale price of $1.65 per can. The average price of a tennis racket is $110, and consumer's average household income is $24,600. What is the estimated number of cans of tennis balls demanded? At the values of P, M, and PR given, what are the estimate values of the price ( ), income ( M), and cross-price elasticities ( XR) of demand? What will happen, in percentage terms, to the number of cns of tennis balls demanded if the price of tennis balls decreases 15 percent? What will happen, in percentage terms, to the number of cans of tennis balls demanded if average household income increases by 20 percent? What will happen, in percentage terms, to the number of cans of tennis balls demanded if the average price of tennis rackets increases 25 percent?Explanation / Answer
a)As p value of P,M,PR are less than 0.05, so these variables are statistically significant at 5%. but intercept is not significant as its p value is greater than 0.05
b)Estimated cans oftennis balls demanded from estimated eqaution Q =-425120-37260P+1.49*M-1456PR
= 425120-37260.6*1.65+1.49*24600-1456*110
=240,134 cans are demanded
c) price elasticity =dQ/dP*P/Q = -37260.6* 1.65/240134 = -0.256
income elasticity =dQ/dI *I/Q = 1.49*24600/240134 =0.152
cross price elasticity =dQ1/dP2 *P2/Q1 = 1456*110/240134 =0.66
d)if price decreases by 15% . then quantity incraeses by == dQ/dP *0.15 = 37260.6*0.15 = 5589 cans of tennis balls consumption increases
e)if income increases by 20% then quantity incraese = dQ/dI* 0.2*I =1.49*0.2 *24600= 7331 cans purchase incraeses
f)if avg price of rackets decraese by 255 then quantuity increase by =dQ/dP2*0.25 =1456*0.25 =364 cans of tennis balls consumption increases
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