vations: 20 R2 = .876
Variable Parameter Standard T-Ratio
Estimate Error
Intercept 8.64 2.50
Price (P) -3.25 0.74
Income (I) 1.55 0.19
Number of doctors (D) 4.67 0.56
a. Write the demand equation for prescription drugs.
b. Explain the meaning of R2 = .876.
c. Which of these variables are statistically significant at α =.05? Use a two-tail t-test to verify the statistical significance of each of the variables.
d. Given P= $10, I = 15 (‘000s), and D= 20, determine Q, the price and income elasticity of demand for prescription drugs.
e. What pricing strategy should the drug company use to increase their revenues, given the price elasticity of demand you obtained in question (4) above? Why?