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1. If OPEC increases its price of oil, and still the demand for oil decreases by a very small amount, we can conclude that the demand for oil is a. relatively elastic. b. relatively inelastic. c. perfectly elastic. d. perfectly inelastic. 2. If an item has several good substitutes, the demand curve for that item is likely to be a. relatively inelastic. b. relatively elastic. c. perfectly inelastic. d. unit elastic. 3. When purchases of tennis socks decline following an increase in the price of tennis sneakers (other things remaining equal), the relationship between these two items can be described as a. complementary. b. substitutable. c. unique. d. ordinary. 4. The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1, the quantity sold per hour fell from 18 to 8. The arc elasticity of demand for lettuce is a. -0.56. b. -1.57. C. -0.8. d. -1.15. 5. If a firm decreases the price of a good and total revenue decreases, then a. the demand for this good is price inelastic. b. the demand for this good is price elastic. c. the cross elasticity is negative. d. the income elasticity is less than 1. 5. The government unit that wants to achieve "revenue enhancement" will find it considerably more favorable to enact an excise tax on goods whose demand is a. highly elastic. b. relatively elastic. c. highly inelastic. d. unitary elastic. 7. Which of the following is a test of the statistical significance of the entire regression equation? a. F-test b. R2 C. t-test Durbin-Watson test 8. When the R2 of a regression equation is very high, it indicates that a. all the coefficients are statistically significant. b. the intercept term has no economic meaning. c. a high proportion of the variation in the dependent variable can be accounted for by the variation in the independent variables. d. there is a good chance of serial correlation and so the equation must be discarded.

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9. Which of the following indicators will always improve when more variables are added to a regression equation? a. the magnitudes of the coefficients b. R2 c. the t-test . the standard errors of the coefficients 10. Which of the following is most likely to indicate a statistically significant regression coefficient? a. [t| > R2 b. R2 >.90 c. It| > 2 d. It| >4 11. The XYZ company is a producer of dishwashers. The company's marketing department has estimated the following demand curve for the company's best-selling model in one of its regions. Q = 2000 - 4P + 6A + 5/ + 5PC - 4AC where Q = Number of dishwashers demanded P = $600; Price of dishwashers A = $150; Advertising expenditures (thousands) 1= $50; GDP per capita (thousands) PC = $500; Competitor's price AC = $200; Competitor's advertising expenditures (thousands) Calculate the amount demanded for this product using the information given above. 12. The XYZ company is a producer of dishwashers. The company's marketing department has estimated the following demand curve for the company's best-selling model in one of its regions. Q = 2000 - 4P + 6A + 5/ + 5PC - 4AC where Q = Number of dishwashers demanded P = $600; Price of dishwashers A = $150; Advertising expenditures (thousands) 1= $50; GDP per capita (thousands) PC = $500; Competitor's price AC = $200; Competitor's advertising expenditures (thousands) Calculate the price to sell 3450 units. 13. The XYZ company is a producer of dishwashers. The company's marketing department has estimated the following demand curve for the company's best-selling model in one of its regions. Q = 2000 - 4P + 6A + 5/ + 5PC - 4AC where Q = Number of dishwashers demanded P = $600; Price of dishwashers A = $150; Advertising expenditures (thousands) 1 = $50; GDP per capita (thousands] PC = $500; Competitor's price AC = $200; Competitor's advertising expenditures (thousands) What would be the effect on the sales of dishwashers if the competitor reduces price by $50? [Note: if there is a decrease, you must have a minus (-) sign in front of your numerical answer with no space, e.g. a drop of 50 would be -50.)

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14. The XYZ company is a producer of dishwashers. The company's marketing department has estimated the following demand curve for the company's best-selling model in one of its regions. Q = 2000 - 4P + 6A + 51 + 5PC - 4AC where Q = Number of dishwashers demanded P = $600; Price of dishwashers A = $150; Advertising expenditures (thousands) 1 = $50; GDP per capita (thousands) PC = $500; Competitor's price AC = $200; Competitor's advertising expenditures (thousands) What should be the change in to offset the decrease in by $50? (Note: if there is a decrease, you must have a minus (-) sign in front of your numerical answer with no space and do not use the dollar sign, e.g. a drop of $50 would be -50.) 15. The XYZ company is a producer of dishwashers. The company's marketing department has estimated the following demand curve for the company's best-selling model in one of its regions. Q = 2000 - 4P + 6A + 51 + 5PC - 4AC where Q = Number of dishwashers demanded P = $600; Price of dishwashers A = $150; Advertising expenditures (thousands) 1= $50; GDP per capita (thousands) PC = $500; Competitor's price AC = $200; Competitor's advertising expenditures (thousands) In response to competitor's strategy of reducing by $50, suppose the company does not want to change . By how much should the company change its advertising expenditure to keep sales at the same level? (Note: if there is a decrease, you must have a minus (-) sign in front of your numerical answer with no space and do not use the dollar sign, e.g. a drop of $50 would be -50.) 16. The XYZ company is a producer of dishwashers. The company's marketing department has estimated the following demand curve for the company's best-selling model in one of its regions. Q = 2000 - 4P + 6A + 51 + 5PC - 4AC where Q = Number of dishwashers demanded P = $600; Price of dishwashers A = $150; Advertising expenditures (thousands) 1 = $50; GDP per capita (thousands) PC = $500; Competitor's price AC = $200; Competitor's advertising expenditures (thousands) If the government increases the sales tax by 1 percent, what will be the sale price of dishwashers after the tax (assume that the elasticity of demand is equal to the elasticity of supply in absolute value). 17. The ABC movie theater has 300 seats. In a typical month, 25 percent of the seats are sold. The price elasticity is estimated to be -0.9. The price of a ticket is $8.00. The manager wants to increase the attendance to 30 percent. What price should he charge per ticket? (Note: Use the arc elasticity formula and do not put the dollar sign in your answer.)

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18. The ABC movie theater has 300 seats. In a typical month, 25 percent of the seats are sold. The price elasticity is estimated to be -0.9. The price of a ticket is $8.00. The manager wants to increase the attendance to 30 percent. What price should he charge per ticket? (Note: Use the arc elasticity formula.) Changing the price charged per ticket to achieve 30 percent attendance is a good strategy. a. True b. False 19. One of the leading laptop manufacturers has estimated the following demand equation based on the data from its 50 branch offices and dealerships across the country: Q = + 10,000 - 60P + 300A + 50 - 100+50 | (7400) (25) (120) (22) (68) (28) R2 = 0.74 F = 28.56 The variables and their assumed values are Q = Quantity P = Price of basic model = 500 A =Advertising expenditures = 50 Pc =Average price of the competitor's product = 600 Ac =competitor's advertising expenditures = 30 I = per capita income = 75 For each of the following, compute the elasticity and then choose the correct interpretation of that elasticity from the following menu. i. Demand is Elastic increasing price would increase revenue ii. Inferior Good ili. Demand is inelastic, decreasing price would decrease revenue iv. Sales are not responsive to advertising v. Normal goods and sales are not affected by the business cycle vi. Sales are not responsive to competitors advertising vii. Sales are responsive to advertising to some degree vili. Substitute ; Signifiant effet on sales ix. Substitute ; insignifiant effet on sales x. Sales are responsive to competitors advertising to some degree xi. Normal Goods and sales are not affected much by the business cycle a. Price of basic Model a. COMPUTE elasticity b. choose the correct interpretation of that elasticity b. Advertising Expenditures? a. COMPUTE elasticity b. choose the correct interpretation of that elasticity c. Average Price of the competitor's product? a. COMPUTE elasticity b. choose the correct interpretation of that elasticity d. competitor's advertising expenditures? a. COMPUTE elasticity b. choose the correct interpretation of that elasticity e. per capita income? a. COMPUTE elasticity b. choose the correct interpretation of that elasticity

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20. One of the leading laptop manufacturers has estimated the following demand equation based on the data from its 50 branch offices and dealerships across the country: Q = + 10,000 - 60P + 300A + 50 - 100+50 1 (7400) (25) (120) (22) (68) (28) R2 = 0.74 F = 28.56 The variables and their assumed values are Q = Quantity P = Price of basic model = 500 A =Advertising expenditures = 50 Pc =Average price of the competitor's product = 600 Ac= competitor's advertising expenditures = 30 I = per capita income = 75 The best strategy for this firm to increase its market share is to cut its price of the basic model. Select one: a. True b. False 21. One of the leading laptop manufacturers has estimated the following demand equation based on the data from its 50 branch offices and dealerships across the country: Q = + 10,000 - 60P + 300A + 50 - 100+50 1 (7400) (25) (120) (22) (68) (28) R2 = 0.74 F = 28.56 The variables and their assumed values are Q = Quantity P = Price of basic model = 500 A =Advertising expenditures = 50 Pc =Average price of the competitor's product = 600 Ac = competitor's advertising expenditures = 30 I = per capita income = 75 For each variable listed below, indicate whether it is or it is not statistically significant. a. Price of basic Model i. Statistically significant Not Statistically significant b. Advertising Expenditures? i. Statistically significant ii. Not Statistically significant C. Average Price of the competitor's product? i. Statistically significant ii. Not Statistically significant d. competitor's advertising expenditures? i. Statistically significant ii. Not Statistically significant e. per capita income? i. Statistically significant ii. Not Statistically significant 22. According to a study, the price elasticity of jewelry is 1.2 and its income elasticity is 1.5 in the U.S. What would be expected to happen to the total quantity of jewelry sold in the U.S. if incomes fall by 10 percent? (Note: your answer should just be a number with no percent sign. Additionally, if the answer is a decrease, you need a minus (-) sign, e.g., a decrease of 5% would be -5.)?

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Answer & Explanation
Verified Solved by verified expert

1. b - Relatively Inelastic

2. c - Perfectly Inelastic

3. a - Complementary

4. d - -1.15

5. c - the cross elasticity is negative

6. b - relatively elastic

7. a - F-test

8. c - a high proportion of the variation in the dependent variable can be accounted for by the variation in the independent variables

9. b - R2

10. b - |R2| > 0.90

11. Q = 2000 - 4(600)+6(150)+5(50)+5(500)-4(200)

Q = 2450 units

12. 3450 = 2000-4P+6(150)+5(50)+5(500)-4(200)

P = $350

13. Q = 2000 - 4(600-50)+6(150)+5(50)+5(500)-4(200)

Q = 2000 - 4(550)+6(150)+5(50)+5(500)-4(200)

Q = 2650 units 

Step-by-step explanation

1. Relatively inelastic because a huge change in price is causing a little change in demand which means demand is relatively insensitive towards the price. This means a huge change in price is not changing much of the demand habits of the customer for oil. This also means that the value of elasticity is lesser than 1.0

 

2. Perfectly inelastic because there are a lot of substitutes for a good which means that the customer will have a lot of options to choose from. This will not change the customer's demand due to the price as the customer can get the same product's substitute and quantity at much cheaper rates.

 

3. Complementary because the decrease in the purchase of tennis socks means that their demand has decreased and hence there will be a rise in prices of tennis socks. On the other hand, there is a rise in prices of tennis sneakers depicting that both goods have the same reaction to the changes in the purchases of one good. As both the goods have the same reaction to changes in price or demand, we can say that tennis socks and tennis sneakers are complementary goods.

 

4. Arc elasticity measures elasticity at the midpoint between two selected points on the demand curve by using the midpoint between two points.

Arc Ed = [(Qd2 - Qd1)/Midpoint Qd] / [(P2 - P1)/Midpoint P]

Midpoint Q = (Q1 + Q2)/2

Midpoint P = (P1 + P2)/2

Let, Old price of head of lettuce be P1 = 0.5 cents

New price of head of lettuce be P2 = $1

Old demand for lettuce be Q1 = 18 

New demand for lettuce be Q2 = 8

Midpoint Q = (1+0.5)/2 = 0.75

Midpoint P = (18+8)/2 = 13

Arc Ed = [(8-18)/13] / [(1-0.5)/0.75]

= -1.15

 

5. The total revenue is the product of price and quantity demanded of the product.

Since there is a fall in the price of the good, that means there will be a rise in the demand because overall there has been a fall in the total revenue. A negative total revenue can be obtained by the product of negative price and positive quantity demanded.

Therefore, the cross elasticity of the product will be negative as there is a fall in prices and an increase in demand showcasing a negative relationship.

 

6. Relatively elastic because for the government to increase the revenue, they will be required to increase the excise tax and with relatively elastic demand, the citizens will be demanding goods even at big changes in prices which will be beneficial for the government as more purchases will render more excise tax.

 

7. F-test because in a regression test, it is required to check the relationship between independent and dependent variables to be linear and F-test helps in giving that surety that whether or not the linear regression model fits the database than a model with no predictor variable.

 

9. R2 because adding independent variables to a multiple linear regression model will always increase the amount of explained variance in the dependent variable (R2)