Question: A study estimates the demand for over-the-counter cough and cold medicines to be: Log Q = 0.885 - 0.744 log(P) - 0.50 log(INC) + 0.253

A study estimates the demand for over-the-counter cough and cold medicines to be: Log Q = 0.885 - 0.744 log(P) - 0.50 log(INC) + 0.253 log(ADV) - 0.30 log(PHYSP) (5.52) (4.92) (1.40) (6.64) (0.99)

Adj. R 2 = 0.30

N = 243

where: Q = Annual dosages demanded of cough and cold medicines P = Price per dosage of cough and cold medicines INC = Average income of buyers ADV = Advertising expenditures on cough and cold medicines PHYSP = Market price of a physician visit t-statistics shown in parentheses below the estimated coefficient

A. Which of the estimated coefficients have signs contrary to theoretical expectations? Explain.

B. Which coefficient estimates are statistically significant from zero at the 5 percent level or better? Explain.

C. What percentage of the variation in dosages demanded remains unexplained? Explain. D. Suppose the price per dosage increased by 10 percent. By how much would dosages demanded change? Explain. Would total revenues to cold medicine producers increase or decrease? Explain.

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