Question: How should I set R Script for following question? This question considers data on sales volume, price, and advertisting display activity for packages of Borden
How should I set R Script for following question?
This question considers data on sales volume, price, and advertisting display activity for packages of Borden sliced cheese, available in "cheese.csv". You've looked a slice of this data before (for Kroger's in the DFW area). You'll now examine the full data set. For each of 88 stores (store) in different US cities, we have repeated observations of the weekly sales volume (vol, in terms of packages sold), unit price (price), and whether the product was advertised with an in-store display during that week (disp = 1 for display). Altogether there are 5,555 observations in the data set.
The goal of this analysis is to understand consumer behavior for Borden slice cheese, by characterizing the price elasticity of demand for this market. Remember back to our milk sales-versus-price data: a typical model for price elasticity of demand is of the form Q = KP , where Q is quantity sold, P is price, K is a constant, and is the elasticitythat is, the relative percentage change in sales as price changes by 1%. You should recall how to use linear least squares to fit such a model.
Build a model for Q (sales volume) in terms of price (P), store-level dummy variables, and a dummy variable for whether or not there was a display for cheese.
Use this model to answer the following questions, quoting appropriate confidence intervals:
What is the price elasticity of demand for Borden sliced cheese in no-display weeks? Interpret this number in a single sentence (i.e. "When price of cheese goes up by 1%. . . ").
Does price elasticity for Borden cheese appear to be changed by the presence of in-store display? (Hint: remember about interaction terms in models with numerical and categorical predictors.) Can you think of a possible economic explanation for your result here?
What price should Kroger's in Dallas/Ft.~Worth charge for cheese in no-display weeks if their goal is to optimize gross profit?
Adjusting for store-level differences and differences in price from week to week, how much higher or lower in percentage terms do sales seem to be in display weeks versus non-display weeks, on average across all stores?
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