Question #62908

PERIOD QUANTITY PRICE INCOME ADVERTISING

1 120 8.00 10 3

2 165 4.00 22 7

3 120 7.00 20 5

4 165 3.00 20 8

5 180 4.00 30 8

6 90 10.00 19 6

7 150 4.00 18 10.2

8 190 1.60 25 9.3

9 160 5.00 30 8

10 200 2.00 35 9.5

a. Linear Relationship

i. Identify the dependent and independent variables.

ii. Estimate a linear relationship between the dependent variable and all the independent variables.

iii. What are the tests that you would use to determine the “goodness-of-fit” of the estimated demand function? Conduct the tests and explain the results.

iv. Discuss the economic implications of the various coefficients.

v. Compute the price elasticity of demand and income elasticity of demand in period 10. Elaborate your answers.

(15 Marks)

b. Non linear relationship.

i. Estimate a logarithmic form of the demand function.

ii. Is the estimated demand function “good”? Why or why not?

iii. Compare with the linear form above. Elaborate.

1 120 8.00 10 3

2 165 4.00 22 7

3 120 7.00 20 5

4 165 3.00 20 8

5 180 4.00 30 8

6 90 10.00 19 6

7 150 4.00 18 10.2

8 190 1.60 25 9.3

9 160 5.00 30 8

10 200 2.00 35 9.5

a. Linear Relationship

i. Identify the dependent and independent variables.

ii. Estimate a linear relationship between the dependent variable and all the independent variables.

iii. What are the tests that you would use to determine the “goodness-of-fit” of the estimated demand function? Conduct the tests and explain the results.

iv. Discuss the economic implications of the various coefficients.

v. Compute the price elasticity of demand and income elasticity of demand in period 10. Elaborate your answers.

(15 Marks)

b. Non linear relationship.

i. Estimate a logarithmic form of the demand function.

ii. Is the estimated demand function “good”? Why or why not?

iii. Compare with the linear form above. Elaborate.

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