Assignment: Wilpen Company, a price-setting form, produces nearly 80 percent of all tennis balls purchased in the United States. Wilpen estimates the U.S. demand for its tennis balls by using the linear specifications:
Q = a + bp + cm + dpr
Where Q is the number of cans of tennis balls sold quarterly, P is the wholesale proce Wilpen charges for a can of tennis balls, M is the consumer's average household income, and Pr is the average price of tennis rackets. The regression results are as follows:
Dependent Variable : Q
R-Square: 0.8435
F- Ratio: 28.75
P-Value on F: 0.001
Observations: 20
Variable Parameter Standard T-Ratio P-Value
Estimate Error
Intercept 425120.0 220300.0 1.93 0.0716
P -37260.6 12587 -22.96 0.0093
M 1.49 0.3651 4.08 0.0009
PR -1456.0 460.75 -3.16 0.0060
Question 1: Discuss the statistical significance of the parameter estimates â, b, c, and d using the p-values. Are the signs of b, c, and d consistent with the theory?
Wipen plans to charge a wholesale price of $1.65 per can. The average price of a tennis racket is $110, and consumers average household income is $24,600.
Question 2: What is the estimated number of cans of tennis balls demanded?
Question 3: At the values of P, M, and Pr given, what are the estimated values of the price (E), income (Em), and cross-price elasticities (Exr) of demand?
Question 4: What will happen, in the percentage of terms, to the number of cans of tennis balls demanded if the price of tennis balls increase 15%?
Question 5: What will happen, in percentage of terms, to the number of cans of tennis balls demanded if the average household income increase 20%?
Question 6: What will happen, in percentage of terms, to the number of cans of tennis balls demanded if the average price of tennis rackets increase by 20 %?