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BA 2004 Managerial Economics Demand Theory and Estimation

A. The regression equation estimated from the data is: Unit Sales = -117.513 – 0.296(Price) + 0.036(Advertising) + 0.066(Personal Selling). B. The coefficient of determination is 0.9697, indicating the independent variables explain 96.97% of the variation in unit sales. C. Price and personal selling expenditures significantly impact unit sales based on a significance level of 5%. However, advertising expenditures do not significantly impact unit sales.

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237 views4 pages

BA 2004 Managerial Economics Demand Theory and Estimation

A. The regression equation estimated from the data is: Unit Sales = -117.513 – 0.296(Price) + 0.036(Advertising) + 0.066(Personal Selling). B. The coefficient of determination is 0.9697, indicating the independent variables explain 96.97% of the variation in unit sales. C. Price and personal selling expenditures significantly impact unit sales based on a significance level of 5%. However, advertising expenditures do not significantly impact unit sales.

Uploaded by

Euniz Dapiton
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BA 2004 Managerial Economics

Demand Theory and Estimation

Electronix Inc. Case

Using SPSS, MS Excel or other statistical software package, run the given data
and answer the following in MS Word.

Assume that Electronix, Inc., a small startup company that distributes a particular
business machine, has the following monthly data on unit sales (Q), price (P),
advertising expenditures (AD), and personal selling expenditures (PSE) over the
past year.

If a linear relation between unit sales, price, advertising, and personal selling
expenditures is hypothesized, the regression equation takes the following form:

Sales y t =b o+ b P Pt + b AD AD t + b PSE PSE t +u t

where y is the number of units sold, P is the average price per month, AD is
advertising expenditures, PSE is personal selling expenditures, and u is a
random disturbance term – all measured on a monthly basis over the past year.

A. Present the computer results of regression.


B. Estimate the regression equation of y on the explanatory variables.
C. Check for consistency in the relationship between quantity demand and the
three explanatory variables as postulated in demand theory by indicating the
change in the quantity demanded of the commodity for each unit change in
the explanatory variables.
D. Find and interpret the adjusted and the unadjusted coefficient of
determination.
E. Test at the 5% level for the overall statistical significance of the regression.
Interpret the result.
F. Test at the 5% level for the statistical significance of the slope parameters.
Interpret the result.
G. Specify the final demand model.
H. Estimate the confidence intervals for y if P = $2,500, AD = $30,000 and PSE =
$50,000.
Interpret your forecast. (Tip: SEE provides a helpful means for estimating
confidence intervals)
Show all results in two decimal places.
Advertising
Personal Selling
Month Units Sales Price ($) Expenditures
Expenditures ($)
($)
January 2,500 3,800 26,800 43,000

February 2,250 3,700 23,500 39,000

March 1,750 3,600 17,400 35,000

April 1,500 3,500 15,300 34,000

May 1,000 3,200 10,400 26,000

June 2,500 3,200 18,400 41,000

July 2,750 3,200 28,200 40,000

August 1,750 3,000 17,400 33,000

September 1,250 2,900 12,300 26,000

October 3,000 2,700 29,800 45,000

November 2,000 2,700 20,300 32,000

December 2,000 2,600 19,800 34,000


The Summary Outputs for Regression Analysis derived by using MS Excel are

presented in the image above.

Regression Equation:

Y = -117.513 – 0.296 X1 + 0.036 X2 + 0.066 X3

Y = Unit Sales

X1= Price

X2= Advertising Expenditures

X3=Personal Selling Expenditures

The coefficient of determination in this case is 0.969720166, which means that

the X Variables account for 96.97 percent of the variation in the Y Variable.

Because there are multiple X Variables, the Adjusted R Squared is the most

precise percentage that can explain the variation in the Y Variable (Unit Sales).

As a result, the Price, Advertising Expenditures, and Personal Selling

Expenditures account for 95.84 percent of the variation in Unit Sales.

Prob > F = 2.04356E-06 or 0.00000204356; which is < 0.05

We Reject H0 or Reject the Null Hypothesis if we assess the overall statistical

level of significance of regression at 5%. As a result, the x (Unit Sales) and y

variables have a significant relationship (Price, Advertising Expenditures,

Personal Selling Expenditures).


There is a significant relationship between Unit Sales and Price because the P-

value of Price (0.019647168) is less than the (0.05).

There is no significant relationship between Unit Sales and Advertising

Expenditures because the P-value of Advertising Expenditures (0.32666239) is

greater than the (0.05).

There is a significant relationship between Unit Sales and Personal Spending

Expenditures since the P-value of Personal Spending Expenditures

(0.001740562) is less than the (0.05).

As a result, Price and Personal Spending Expenditures can predict the Unit

Sales for business machines of the Electronix Inc. over the past year. Meanwhile,

Advertising Expenditures cannot predict the Unit Sales.

If X1 = 2500; X2 = 30000; X3 = 50000

Y = -117.513 – 0.296 X1 + 0.036 X2 + 0.066 X3

Y = -117.513 – 0.296 (2500) + 0.036 (30000) + 0.066 (50000)

Y = -117.513 – 740 + 1080 + 3300

Y = 3,522.49

Therefore, the predicted Unit Sales is $3,522.49 if the Price is $2,500, AD is

$30,000, and PSE is $50,000.

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