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# Managerial Economics: Estimate the demand equation, Graph

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The factors that affect the demand for new passenger cars in the U.S. are given; From these data answer the following questions.

1. Estimate the demand equation for new cars of the form Y = a +b1X1 + b2X2 + b3X3+b4X4

2. With the use of a graph, compare the estimated demand Y' based on the above equation with the actual data. Graph both the actual and the estimated demand.

3. Assess the goodness of fit of between the actual and the estimated demand

4. State the specific effects of each independent variable on the demand for automobile

5. Identify the significant variables using the t test. Use the 5% level of sginificance.

The Annual Demand for Passenger Cars in the United States: ( Please see the attachment).

Years CPI(X1) DPI(X2) INT(X3) EMP(X4) NEW CARS SOLD(Y)

1 = consumer price index in percent

X2 = disposable personal income in bil dols.

X3 = interest rate in percent

X4 = employment in 100

Y = no of new cars sold in 1000

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#### Solution Summary

A Complete, Neat and Step-by-step Solution is provided in the attached Excel file.

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## Managerial Economics of Annual Demand

The annual demand for new automobile in the United States from 1971 to 1986 are shown on the attached form.

From the data

1 Find the sale forecasting equation of the form Y=a+b12X1+b2X2+b2X3 and graph it

2 Discuss the goodness of fit between the actual and the estimated sale of new cars first using developsed in (1) above and second using the value of the RSQ.

3 Discuss the specific meanings of the regression coeffients, b1X1, b2X2 and b3X3.

4 Assume that in 1990, the consumer price index will be 400, monthly per capita personal income \$4,000 and the interst rate 7 %. Estimate the sale of new cars for 1990.

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