Reference no: EM13221866
Wilpen Company, a price-setting firm, produces nearly 80 percent of all tennis balls purchased in the United States. Wilpen estimates the U.S. demand for its tennis balls by using the following linear equation: Q = a + bP + cM + dPR Where is Q is the number of cans of tennis balls sold quarterly, P is the wholesale price Wilpen charges for a can of tennis balls, M is the consumer's average household income, and PR is the average price of tennis rackets. The regression results are as follows: Dependent Variable: Q R-SQUARE F-RATIO P-VALUE ON F OBSERVATIONS: 20 0.8435 28.75 0.001 PARAMETER STANDARD VARIABLE ESTIMATE ERROR T-RATIO P-VALUE INTERCEPT 425120.0 220300.0 1.93 0.0716 P -37260.0 12587 -22.96 0.0093 M 1.49 0.3651 4.08 0.0009 PR -1456.0 460.75 -3.16 0.0060
a. Discuss the statistical significance of the parameter estimates a, b,c, and d using the p-values. Are the signs of b,c, and consistent with the theory of demand? Wilpen plans to charge a wholesale price of $1.65 per can. The average price of a tennis racket is $110, and consumer's average household income is $24,000.
b. What is the estimated number of cans of tennis balls demanded?
c. At the values P, M, and PR given, what are the estimated values of the price (E), income, (EM), and cross-price elasticities (ExR) of demand?
d. What will happen, in percentage terms, to the number of cans of tennis balls demanded if the price of tennis balls decreases 15 percent?
e. What will happen, in percentage terms, to the number of cans of tennis balls demanded if average household income increases 20 percent?
f. What will happen, in percentage terms, to the number of cans of tennis balls demanded if the average price of tennis rackets increases 25 percent?
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