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percentage change in demand

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Border Snacks Inc. produces and sells picante sauce, nacho chips, and queso dip. The company's marketing department

estimated a linear demand function for Border's picante sauce:

QF = a + bPF + cM + dPN + ePQ

where QF is the number of jars of picante sauce sold per month, PF is the price of picante sauce, PN is the price of a bag of nacho chips, PQ is the price of a jar of queso dip, and M is consumer income. In the market served by Border Snacks, income is currently $16,000. The following regression results were obtained using 22 monthly observations:

a. Explain carefully and completely the meaning of the p-value for the parameter estimate on the price of nacho chips.

b. If Border Snacks Inc. sets the price of picante at $6 per jar, the price of its nacho chips at $3 per bag, and the price of its queso dip at $8 per jar, what is the predicted sales of picante sauce?

c. At the prices set in part b above, what is the price elasticity of demand for picante sauce?

d. How will a 2.4% fall in the price of nacho chips affect the demand for picante sauce?

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Solution Summary

The percentage change in demand is assessed.