3. You've been hired by a regional franchiser of take-and-bake pizza outlets to analyze demand for...

 

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3. You've been hired by a regional franchiser of take-and-bake pizza outlets to analyze demand for their pizza. Based on data from fifteen of the company's outlets, you've estimated a demand function of the form: Q=ebo pbi Abaybse where Q is quantity demanded (measured in number of pizzas sold per month), P is price (measured in $/pizza), A is advertising expenditure ($ per month), Y is disposable income per household ($ per month), and u is a random error term. Taking the natural log of both sides of this expression makes it linear in the parameters, so the parameters can be estimated with linear regression. Your regression results follow: Variable Intercept In (P) In(A) In (Y) Parameter Standard t- Estimate -13.637 -0.5202 1.3844 1.2567 Error statistic 3.230 -4.22 0.1052 -4.94 0.2424 5.71 0.3521 3.57 (Show R-Squared: 0.833, Number of Observations: 20 (a) It appears demand for pizza is price inelastic. If this is true, will revenue increase or decrease if you increase the price you charge for pizza by 10%, holding everything else constant (Explain why you think so)? (b) Use a one-tailed test with a 0.05 significance level to determine whether demand for pizza is significantly price inelastic. Be sure to (a) state your null and alternative hypotheses (b) show your calculations for the test statistic (c) identify the critical t value and (d) state clearly your conclusion 3. You've been hired by a regional franchiser of take-and-bake pizza outlets to analyze demand for their pizza. Based on data from fifteen of the company's outlets, you've estimated a demand function of the form: Q=ebo pbi Abaybse where Q is quantity demanded (measured in number of pizzas sold per month), P is price (measured in $/pizza), A is advertising expenditure ($ per month), Y is disposable income per household ($ per month), and u is a random error term. Taking the natural log of both sides of this expression makes it linear in the parameters, so the parameters can be estimated with linear regression. Your regression results follow: Variable Intercept In (P) In(A) In (Y) Parameter Standard t- Estimate -13.637 -0.5202 1.3844 1.2567 Error statistic 3.230 -4.22 0.1052 -4.94 0.2424 5.71 0.3521 3.57 (Show R-Squared: 0.833, Number of Observations: 20 (a) It appears demand for pizza is price inelastic. If this is true, will revenue increase or decrease if you increase the price you charge for pizza by 10%, holding everything else constant (Explain why you think so)? (b) Use a one-tailed test with a 0.05 significance level to determine whether demand for pizza is significantly price inelastic. Be sure to (a) state your null and alternative hypotheses (b) show your calculations for the test statistic (c) identify the critical t value and (d) state clearly your conclusion

Answer rating: 100% (QA)

a If demand for pizza is price inelastic increasing the price by 10 will result in an increase in revenue This is because price inelasticity implies t... View the full answer