A manufacturer of computer workstations gathered average monthly sales figures from its 56 branch offices and dealerships across the country and estimated the following demand for its product:

Q = 15,000 – 2.8 P + 150 A + 0.3 Ppc + 0.35 Pm + 0.2 Pc

(4234) (1.29) (175) (0.12) (0.17) (0.13)

R^2 = 0.68 F= 21.25

The variables and their estimated values are:

Q = Quantity

P = Price of the basket = $7000

A = Advertising expenditures = $52000

Ppc = Average price of personal computer = $4000

Pm = Average price of minicomputer = $15,000

Pc = Average price of a leading competitor’s workstation = $8,000

( ) the number in brackets is the standard error of estimation SEE

The t-test is = coefficient of variable/SEE

a. Compute the elasticity of each variable.

b. What would happen to Quantity if price (P) increased by $500

c. What would happen to Quantity if average price of personal computer decreases by $1000.

d. Conduct a t-test for the statistical significance of each variable. Which ones are significant at 5% level of significance.

e. What does the value of R^2 mean for this test.

## Solution:

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