value for each independent variable’s coefficient estimate
The MacWend Drive-In has determined that demand for hamburgers
is given by the following equation:
Q = 2052 + 230A – 2000PM + 1000PC + 05I
(185) (264) (-561) (202) (425)
where Q is the number of hamburgers sold per month (in
1,000s), A is the advertising expenditures during the previous month (in
$1,000), PM is the price of MacWend burgers (dollars), PC is the price of
hamburgers of the company’s major competitor (dollars), and I is income per
capita in the surrounding community (in $1,000) The t-statistics for each
coefficient is shown in parentheses below each coefficient
1 How would you interpret the value for each independent
variable’s coefficient estimate?
2 Are the signs of the individual coefficients consistent
with predictions from economic theory? Explain
3 If A = $5,000, PM = $1, PC = $120, and I = $20,000, how
many hamburgers will be demanded?
4 What is the advertising elasticity at A = $5,000?
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