Lorena Bob estimates the demand for Cleavers , a new cutting device, dubbed product x:

Qdx = a - b Px + c Py + d I + e AD

She creates a worksheet in EXCEL with 5 columns: Qdx, Px, Py, I, AD. Here Qd _x is the demand for x, P _x is the price of x, P _y is the average price in dollars of another product Y, and I is dollars of household income and AD is total advertising expenditure for x.

In a typical market, the Px is $ 100, Py is $ 50, average family income is $ 40,000, and AD equals $ 1,000. A portion of the Excel output is reproduced below.

SUMMARY OUTPUT

Regression Statistics

Multiple R 0.97757806

R Square 0.9400000

Adjusted R Square 0.930000

Standard Error 40

Observations 25

ANOVA D SS MS F Signific F

Regression 2 1.593277 0.796638 226.3004 6.19E-15

Residual 23 0.0739257 0.00352

Total 25 1.6672026

Coefficients STD Error

Intercept 2000 1596.0

X Variable 1 -0.25 5

X Variable 2 10 4

X Variable 3 1.5 0.022

X Variable 4 10 0.5

1. Write down the equation that was estimated in EXCEL.

2. Given the initial values, predict the level of sales in this market. Derive a 95% confidence interval around this prediction.

3. Use the initial values to calculate and interpret the following entities:

a. own price elasticity of demand for x.

b. cross price elasticity of demand between x and y.