Use the following information to answer the following question. The following linear demand specification is estimated for Spiker Drones, a price-setting firm: Q= a + bP + CM + dPR where Q is the quantity demanded for the product Spiker Drones sells, P is the price of that product, M is the income, and PR is the price of a related good. The results of the estimation are presented below: DEPENDENT VARIABLE: Q OBSERVATIONS: 32 R-SQUARE 0.7984 F-RATIO P-VALUE ON F 36.14 0.0001 PARAMETER VARIABLE ESTIMATE STANDARD ERROR T-RATIO P-VALUE INTERCEPT 846.30 76.70 11.03 0.0001 P -8.60 2.60 -3.31 0.0026 M 0.0184 0.0048 3.83 0.0007 PR -4.3075 1.230 -3.50 0.0016 Assume that the income is $10,000, the price of the related good is $40, and Spiker Drones sets the price of this product at $30. At the prices and income given above, what is the income elasticity? A. -1.62 B. -0.87 C. 0.21 D. 0.31 E. None of the above.
Use the following information to answer the following question. The following linear demand specification is estimated for Spiker Drones, a price-setting firm: Q= a + bP + CM + dPR where Q is the quantity demanded for the product Spiker Drones sells, P is the price of that product, M is the income, and PR is the price of a related good. The results of the estimation are presented below: DEPENDENT VARIABLE: Q OBSERVATIONS: 32 R-SQUARE 0.7984 F-RATIO P-VALUE ON F 36.14 0.0001 PARAMETER VARIABLE ESTIMATE STANDARD ERROR T-RATIO P-VALUE INTERCEPT 846.30 76.70 11.03 0.0001 P -8.60 2.60 -3.31 0.0026 M 0.0184 0.0048 3.83 0.0007 PR -4.3075 1.230 -3.50 0.0016 Assume that the income is $10,000, the price of the related good is $40, and Spiker Drones sets the price of this product at $30. At the prices and income given above, what is the income elasticity? A. -1.62 B. -0.87 C. 0.21 D. 0.31 E. None of the above.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Use the following information to answer the following question.
The following linear demand specification is estimated for Spiker Drones, a
price-setting firm:
Q= a + bP + CM + dPR
where Q is the quantity demanded for the product Spiker Drones sells, P is the
price of that product, M is the income, and PR is the price of a related
good. The results of the estimation are presented below:
DEPENDENT VARIABLE: Q
R-SQUARE
F-RATIO
P-VALUE ON F
OBSERVATIONS:
32
0.7984
36.14
0.0001
PARAMETER
VARIABLE
ESTIMATE
STANDARD
ERROR
T-RATIO
P-VALUE
INTERCEPT
846.30
76.70
11.03
0.0001
P
-8.60
2.60
-3.31
0.0026
M
0.0184
0.0048
3.83
0.0007
PR
-4.3075
1.230
-3.50
0.0016
Assume that the income is $10,000, the price of the related good is $40, and
Spiker Drones sets the price of this product at $30. At the prices and income
given above, what is the income elasticity?
A. -1.62
B. -0.87
C. 0.21
D. 0.31
E. None of the above.
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