# demand function

A. Which demand function among the ones given here would you choose, and why?

b. How would you interpret the coefficients of ln X2t and ln X3t in these models?

c. What is the difference between specifications (2) and (4)?

d. What problems do you foresee if you adopt specification (4)? (Hint: prices of both pork and beef are included along with the price of chicken)

e. Since specification (5) includes the composite price of beef and pork, would you prefer the demand function (5) to the function (4)? Why?

f. Are pork and/or beef competing or substitute products to chicken? How do you know?

g. Assume function (5) is the "correct" demand function. Estimate the parameters of this model, obtain their standard errors, and R2, R2, and modified R2. Interpret your results.

h. Now suppose you run the "incorrect" model (2). Assess the consequences of this mis-specification by considering the values of 2 and 3 in relation to 2 and 3, respectively.

See attached file for full problem description.

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#### Solution Summary

Locate demand function