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 c P - 100 C A +50 I
(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
c P price of the competitor’s product = 600
C A = competitor’s advertising expenditures = 30
I = per capita income = 75
a. Compute the elasticities for each variable. On this basis, discuss the relative impact that each variable has on the demand. What implications do these results have for the firm’s marketing and pricing policies?
b. How concerned the company should be about the impact of a recession on its sales? Explain.
c. Do you think the firm should cut its price to increase market share? Explain.
d. Conduct a t-test for the statistical significance of each variable. Discuss the results of the t-tests in light of the policy implications mentioned.
e. What proportion of the variation in sales is explained by the independent variables in the
equation? How confident are you about this answer? Explain