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    Linear Demand Regression Analysis

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    A linear demand regression model found the following:

    Ordinary Least Squares Estimates
    ________________________________________

    Dependent Variable : QUANTITY

    Independent variable: Coefficient t-statistic

    Constant 10 2.5

    - PRICE -2 1.3

    - INCOME 3 4.0

    Observations 35

    Adjusted R-Square 0.6320

    Estimated F = 7.960

    Critical t value (95% Confidence Level) 2.042

    Critical F value (95% Confidence Level) 4.17

    - Write the demand function as an equation (quantity as a function of price)
    - Explain the relationship between each independent variable and quantity demanded.
    - If Price = 5 and Income = 12, what is the predicted quantity sold?
    - Using 95% confidence level criterion, which independent factors have an influence on demand?
    - Test the hypothesis that the coefficient of Income is equal to 0. Can you reject this hypothesis?
    - What share of overall variation in demand is explained by the regression equation?
    - What share is left unexplained?

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    Solution Preview

    Please see the attachment.

    A linear demand regression model found the following:
    Ordinary Least Squares Estimates
    ______________________________________________

    Dependent Variable : QUANTITY
    Independent variable : Coefficient t-statistic
    Constant 10 2.5
    - PRICE -2 1.3
    - INCOME 3 4.0
    Observations 35
    Adjusted R-Square 0.6320
    Estimated F = 7.960 ...

    Solution Summary

    The solution provides step-by-step method for the calculation of regression model. Formula for the calculation and Interpretations of the results are also included.

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