Let Y t be the sales during month t (in thousands of dollars) for a photography studio,

Question:

Let Y_t be the sales during month t (in thousands of dollars) for a photography studio, and let P_t be the price charged for portraits during month t. The data are in the file P14_39.xlsx.

a. Use regression to fit the following model to these data: Y_t = a + b₁ P_t + b₂Y_t–1. This says that current sales are related to current price and sales in the previous month.

b. If the price of a portrait during month 21 is $30, what would you predict for sales in month 21?