Posted by **Christopher** on Friday, July 3, 2009 at 7:20am.

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 specifications:

Q= a + bP + cM + dPr

Where 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

Observations: 20

R-Square: 0.8435

F-Ratio: 28.75

P-Value on F: 0.001

Variable

Intercept-Parameter Estimate 425120, Standard Error 220300, T-Ratio 1.93, P-Value 0.0716

P- Parameter Estimate -37260.6, Standard Error 12587, T-Ratio -22.96, P-Value 0.0093

M- Parameter Estimate 1.49, Standard Error 0.3651, T-Ratio 4.08, P-Value 0.0009

PR- Parameter Estimate -1456, Standard Error 460.75, T-Ratio -3.16, P-Value 0.006

Economics- Managerial - Christopher, Wednesday, July 1, 2009 at 9:45pm

Discuss the statistical significance of the parameter estimates a^, b^, c^, and d^ using the p-values. Are the signs of b^, c^, and d^ consistent with the theory of demand?

What is the estimated number of cans of tennis balls demanded?

At the values of P, M, and Pr given, what are the estimated values of the price (E^), income (E^m), and cross-price elasticity’s (E^xr) of demand?

What will happen, in percentage terms, to the number of cans of tennis balls demanded if the price of tennis balls decreases 15 percent?

What will happen in percentage terms, to the number of cans of tennis balls demanded if average household income increases by 20 percent?

What will happen, in percentage terms, to the number of cans of tennis balls demanded if the average price of tennis rackets increases by 20 percent?

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