# Question

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 specification:

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

a. Discuss the statistical significance of the parameter estimates â, bˆ, cˆ, and dˆ using the p –values. Are the signs of bˆ, cˆ, and dˆ consistent with the theory of demand?

Wilpen plans to charge a wholesale price of $1.65 per can. The average price of a tennis racket is $110, and consumers’ average household income is $24,600.

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

c. At the values of P, M, and PR given, what are the estimated values of the price (Ê), income (ÊM), and cross-price elasticities (ÊXR) 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 15 percent?

e. What will happen, in percentage terms, to the number of cans of tennis balls demanded if 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 25percent?

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

a. Discuss the statistical significance of the parameter estimates â, bˆ, cˆ, and dˆ using the p –values. Are the signs of bˆ, cˆ, and dˆ consistent with the theory of demand?

Wilpen plans to charge a wholesale price of $1.65 per can. The average price of a tennis racket is $110, and consumers’ average household income is $24,600.

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

c. At the values of P, M, and PR given, what are the estimated values of the price (Ê), income (ÊM), and cross-price elasticities (ÊXR) 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 15 percent?

e. What will happen, in percentage terms, to the number of cans of tennis balls demanded if 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 25percent?

## Answer to relevant Questions

Cypress River Landscape Supply is a large wholesale supplier of landscaping materials in Georgia. Cypress River’s sales vary seasonally; sales tend to be higher in the spring months than in other months. a. Suppose Cypress ...In January 2014, Digital Advantage, an electronics retailer located in Sacramento, plans to open a new store in Tacoma. The CEO expects to sign a 12-month lease on a 10,000 square foot retail store in a newly constructed ...An airline transportation consultant offers the CEO of BlueStar, a struggling new commercial airline company, the following advice concerning the airline’s high operating costs in the current quarter: “You don’t have ...The Qwik Serve Walk-In Clinic always has three M.D.s and eight R.N.s working at its 24-hour clinic, which serves customers with minor emergencies and ailments. The clinic has hired an efficiency expert to examine its ...Consider the Cobb-Douglas production function Q = 36 K0.5 L 1.0. a. Find the marginal product functions. b. Write equations for the MRTS and the output elasticities. c. The function coefficient is equal to , so the ...Post your question

0