Reference no: EM13373874

1. A management-consulting firm has estimated the following demand function for your product, tractor trailers:

Q_Y = 36 - 1P_Y + 3A_t-1 - 1.2P_X + .1Y

(.3)    (.6)        (.35)     (.03)

where:

            Q_Y       =          number of trailers sold annually.

            P_Y        =          price of trailers in thousands.

            A_t-1      =          advertising expenditures last quarter in thousands.

            P_X        =          average price of trailers in thousands.

            Y         =          average income of tractor-trailer rigs in thousands.

(Standard errors of the coefficients are given in parentheses.)  The adjusted R-squared was .94, and the standard error of the regression was 2 for sample size of 40.

a) Identify any variables that can be rejected as unrelated to sales.

b) Explain how trailer sales vary with changes in advertising and trailer rig income.

c) This year, you will price your trailers at $13,000 each; advertising expenditures last year were $4,000; the expected average price of tractors this year is $15,000; and the predicted average income earned per rig is $100,000.  Calculate the number of units predicted by our model.