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Linear Demand Regression Analysis

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?

Solution Preview

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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 ...

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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