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.