You are the manager of a firm that produces a vegetable cooking oil in Ghana. In order to make informed decision, you engaged an economist to estimate the demand equation for your product. Using data from 25 supermarkets around the country for the month of February, 2021, the estimated linear regression result for your product is shown in the table below: Variable Constant Parameter Estimates Standard error -164.0 20.24 Price of vegetable cooking oil (P-) Price of palm oil (P,) Per capita Income () -3.50 1.55 2.50 0.28 0.45 0.52 R-squared Adjusted R-squared F-statistic 0.8672 0.8132 15.6893 a) Suppose the average price of 3 gallons of vegetable cooking oil is GH¢12, price of 2 gallons of palm oil is GH¢60, the per capita income of Ghana is GH¢420. i Write down the estimated demand equation for your firm's product and interpret the parameter estimates. ii Detemine the quantity of vegetable cooking oil sold. Estimate the own price elasticity of demand and state the type of demand curve your fim has? What would be the effect of a price increase on the firm's total revenue? Assess the probable impact on your fim if the firm producing palm oil decreases their price by 10%. Explain the adjusted R-squared Is the vegetable cooking oil a normal or inferior good? What is the relationship between vegetable cooking oil and palm oil? 11. iv. V. vi. vii. viii.
You are the manager of a firm that produces a vegetable cooking oil in Ghana. In order to make informed decision, you engaged an economist to estimate the demand equation for your product. Using data from 25 supermarkets around the country for the month of February, 2021, the estimated linear regression result for your product is shown in the table below: Variable Constant Parameter Estimates Standard error -164.0 20.24 Price of vegetable cooking oil (P-) Price of palm oil (P,) Per capita Income () -3.50 1.55 2.50 0.28 0.45 0.52 R-squared Adjusted R-squared F-statistic 0.8672 0.8132 15.6893 a) Suppose the average price of 3 gallons of vegetable cooking oil is GH¢12, price of 2 gallons of palm oil is GH¢60, the per capita income of Ghana is GH¢420. i Write down the estimated demand equation for your firm's product and interpret the parameter estimates. ii Detemine the quantity of vegetable cooking oil sold. Estimate the own price elasticity of demand and state the type of demand curve your fim has? What would be the effect of a price increase on the firm's total revenue? Assess the probable impact on your fim if the firm producing palm oil decreases their price by 10%. Explain the adjusted R-squared Is the vegetable cooking oil a normal or inferior good? What is the relationship between vegetable cooking oil and palm oil? 11. iv. V. vi. vii. viii.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:You are the manager of a firm that produces a vegetable cooking oil in Ghana. In order to make
informed decision, you engaged an economist to estimate the demand equation for your
product. Using data from 25 supermarkets around the country for the month of February, 2021,
the estimated linear regression result for your product is shown in the table below:
Variable
Constant
Parameter Estimates
Standard error
-164.0
20.24
Price of vegetable cooking oil (P,)
Price of palm oil (P,)
Per capita Income ()
-3.50
1.55
2,50
0.28
0.45
0.52
R-squared
0.8672
Adjusted R-squared
0.8132
F-statistic
15.6893
a) Suppose the average price of 3 gallons of vegetable cooking oil is GH¢12, price of 2
gallons of palm oil is GH¢60, the per capita income of Ghana is GH¢420.
i. Write down the estimated demand equation for your firm's product and interpret
the parameter estimates.
ii. Detemine the quantity of vegetable cooking oil sold.
Estimate the own price elasticity of demand and state the type of demand
curve your fim has?
What would be the effect of a price increase on the firm's total revenue?
Assess the probable impact on your fim if the firm producing palm oil
decreases their price by 10%.
Explain the adjusted R-squared
Is the vegetable cooking oil a normal or inferior good?
What is the relationship between vegetable cooking oil and palm oil?
111.
iv.
V.
vi.
vii.
viii.
b) Now suppose the economist also estimated the supply curve for your product as:
Qi = -47 + 2.5P, – 1.5P, + 0.75R
P, is the average price of unskilled labour, and R is the average annual rainfall. In
addition, suppose the equilibrium values of unskilled labour and rainfall are GH¢10
and 40 inches respectively:
i. Find the demand and supply curves for vegetable cooking oil.
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