Analyzing the given regression equation
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Suppose that John Smith, the manager of the marketing division of Chevrolet at GM, estimated the following regression equation for Chevrolet automobiles:
Qc=100,000 - 100 Pc + 2,000N + 50I + 30Pf - 1,000 Pg + 3A + 40,000P1
Where Qc= quantity demanded per year of Chevrolet automobiles
Pc= Price of Chev. automobiles in dollars
N= population of the USA in millions
I= per capita disposable income in dollars
Pf= price of Ford automobiles in dollars
Pg= real price of gasoline in cents per gallon
A= advertising expenditures by Chevrolet in dollars per year
P1= credit incentives to purchase Chevrolets, in percentage points below the rate of interest on borrowing in the absence of incentives
(i) Indicate the change in the number of Chevrolets purchased per year (Qc) for each unit change in the independent or explanatory variable
(ii) Find the value of Qc if the average value of Pc=$9000 , N=200 million , I=$10,000 , Pf=1 , Pg=80 cents , A=$200,000 and if P1=1
(iii) Derive the equation for the demand curve for Chevrolet
(iv) Plot the demand curve
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Solution analyzes the given regression equation.
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Please refer attached file for graph.
(i) Indicate the change in the number of Chevrolets purchased per year (Qc) for each unit change in the independent or explanatory variable .
Coefficient of Pc is -100. Negative sign means that Qc and Pc have inverse relationship. It indicates that for one unit increase in value of Pc, Qc will decrease by 100 units and for one unit decrease in value of Pc, Qc will increase by 100 units. (Other parameters remain unchanged).
Coefficient of N is 2000. Positive sign means that Qc and N have direct relationship. It indicates that for one unit increase in value of N, Qc will increase by 2000 units and for one unit decrease in value of N, Qc will decrease by 2000 units. (Other parameters remain unchanged).
Coefficient of I ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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