Posted by **Diana** on Friday, March 2, 2012 at 7:01pm.

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 consumers average household income, and Pr is the average price of tennis rackets. The regression results are as follows

Dependant Variable: Q R-Square F-Ratio P-Value on F

Observations: 20 0.8435 28.75 0.001

Variable Parameter Standard

Estimate Error T-Ratio P-Value

Intercept 425120.0 220300.0 1.93 0.0716

P -37260.6 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 d consistent with the theory of demand?

b. What is the estimated number of cans of tennis ball demanded?

c. At the values of 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 by 15 percent?

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