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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