Nicky Joe runs a satellite television subscription service for a rural customer base is considering a sale on his satellite dishes Using monthly data he estimates the demand for the dishes to be Log Q = log 11 –- 0.70 Log P + 1.4 Log I. R² = 0.85, SER= 2.33 (0.50) |(3.12) (0.10) At an approximate 95% level of confidence, can you say that a price reduction will increase profits? Why? a. Yes, a 95% confidence interval for the price elasticity of demand is [-0.50 to - 0.90] so the firm is on the inelastic portion of the demand curve, and a price reduction will increase profits. b. No, a 95% confidence interval for the price elasticity of demand is [-0.50 to - 0.90] so the firm is on the inelastic portion of the demand curve, and a price reduction will reduce profits. c. Yes, a 95% confidence interval for the price elasticity of demand is [0.50 to 0.90] so the firm is on the elastic portion of the demand curve, and a price reduction will increase profit. d. No, a 95% confidence interval for the price elasticity of demand is [0.50 to 0.90] so the firm is on the elastic portion of the demand curve, and so the effects of a price reduction cannot be determined.
Nicky Joe runs a satellite television subscription service for a rural customer base is considering a sale on his satellite dishes Using monthly data he estimates the demand for the dishes to be Log Q = log 11 –- 0.70 Log P + 1.4 Log I. R² = 0.85, SER= 2.33 (0.50) |(3.12) (0.10) At an approximate 95% level of confidence, can you say that a price reduction will increase profits? Why? a. Yes, a 95% confidence interval for the price elasticity of demand is [-0.50 to - 0.90] so the firm is on the inelastic portion of the demand curve, and a price reduction will increase profits. b. No, a 95% confidence interval for the price elasticity of demand is [-0.50 to - 0.90] so the firm is on the inelastic portion of the demand curve, and a price reduction will reduce profits. c. Yes, a 95% confidence interval for the price elasticity of demand is [0.50 to 0.90] so the firm is on the elastic portion of the demand curve, and a price reduction will increase profit. d. No, a 95% confidence interval for the price elasticity of demand is [0.50 to 0.90] so the firm is on the elastic portion of the demand curve, and so the effects of a price reduction cannot be determined.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![Nicky Joe runs a satellite television subscription service for a rural customer base is
considering a sale on his satellite dishes Using monthly data he estimates the demand for
the dishes to be
Log Q = log 11 – 0,70 Log P +1.4 Log I. R² = 0.85, SER=2.33
(0.50)
(3.12) (0.10)
At an approximate 95% level of confidence, can you say that a price reduction will
increase profits? Why?
a. Yes, a 95% confidence interval for the price elasticity of demand is [-0.50 to -
0.90] so the firm is on the inelastic portion of the demand curve, and a price
reduction will increase profits.
b. No, a 95% confidence interval for the price elasticity of demand is [-0.50 to -
0.90] so the firm is on the inelastic portion of the demand curve, and a price
reduction will reduce profits.
Yes, a 95% confidence interval for the price elasticity of demand is [0.50 to
0.90] so the firm is on the elastic portion of the demand curve, and a price
reduction will increase profit.
d. No, a 95% confidence interval for the price elasticity of demand is [0.50 to 0.90]
so the firm is on the elastic portion of the demand curve, and so the effects of a
price reduction cannot be determined.
c.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8d531347-e60a-4c17-8ad1-10d56440f5d0%2F35a0661c-1beb-46ab-962a-cefff2e5daf2%2F8eyfyh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Nicky Joe runs a satellite television subscription service for a rural customer base is
considering a sale on his satellite dishes Using monthly data he estimates the demand for
the dishes to be
Log Q = log 11 – 0,70 Log P +1.4 Log I. R² = 0.85, SER=2.33
(0.50)
(3.12) (0.10)
At an approximate 95% level of confidence, can you say that a price reduction will
increase profits? Why?
a. Yes, a 95% confidence interval for the price elasticity of demand is [-0.50 to -
0.90] so the firm is on the inelastic portion of the demand curve, and a price
reduction will increase profits.
b. No, a 95% confidence interval for the price elasticity of demand is [-0.50 to -
0.90] so the firm is on the inelastic portion of the demand curve, and a price
reduction will reduce profits.
Yes, a 95% confidence interval for the price elasticity of demand is [0.50 to
0.90] so the firm is on the elastic portion of the demand curve, and a price
reduction will increase profit.
d. No, a 95% confidence interval for the price elasticity of demand is [0.50 to 0.90]
so the firm is on the elastic portion of the demand curve, and so the effects of a
price reduction cannot be determined.
c.
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