Question:
Border Snacks Inc. produces and sells picante sauce, nacho chips, and queso dip. The company's marketing department estimated a linear demand function for Border's picante sauce:
QF = a + bPF + cM + dPN + ePQ
where QF is the number of jars of picante sauce sold per month, PF is the price of picante sauce, PN is the price of a bag of nacho chips, PQ is the price of a jar of queso dip, and M is consumer income. In the market served by Border Snacks, income is currently $16,000. The following regression results were obtained using 22 monthly observations:
a. Explain carefully and completely the meaning of the p-value for the parameter estimate on the price of nacho chips.
b. If Border Snacks Inc. sets the price of picante at $6 per jar, the price of its nacho chips at $3 per bag, and the price of its queso dip at $8 per jar, what is the predicted sales of picante sauce?
c. At the prices set in part b above, what is the price elasticity of demand for picante sauce?
d. How will a 2.4% fall in the price of nacho chips affect the demand for picante sauce?
| Dependent Variable |
QP |
R-SQUARE |
F-RATIO |
P-VALUE ON F |
|
| Observations: |
22 |
0.916 |
46.35 |
0.0001 |
|
| Variable |
|
PARAMETER ESTIMATE |
STANDARD ERROR |
T-RATIO |
P-VALUE |
| Intercept |
|
900 |
245.3 |
3.67 |
0.0019 |
| PP |
|
-18 |
5.22 |
-3.45 |
0.0031 |
| M |
|
0.015 |
0.0036 |
4.21 |
0.0006 |
| PN |
|
-88.6 |
32.5 |
-2.73 |
0.0144 |
| PQ |
|
12 |
3.95 |
3.04 |
0.0074 |