A price- setting firm, Wilpen Company produces nearly 80 % of all tennis balls purchased in United States. Wilpen estimates the U. S. demand for its tennis balls by using the linear specification:
Q = a + bP + cM + dPR
somewhere Q is the no. of cans of tennis balls sold quarterly, P is the wholesale value Wilpen accuse for a can of tennis balls, M is the average household in-come of consumer and PR is the average price of tennis rackets. The regression results are as follows:
dependent variable: q r- square f- ratio p- value on f observations: 20 0.8435 28.75 0.001
parameter standard
variable estimate error t- ratio p- value
intercept 455120.0 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
a. Discuss the statistical significance of the parameter estimates b, c, and d using the p-values. Given the signs of c and d, please comment on the good category of tennis ball and its relationship with tennis rackets. Wilpen plans to charge a wholesale price of $1.65 per can. As the average value of tennis racket is $110, and average household income of consumer is $24,600.
b. Elucidate the estimated no. of cans of tennis balls demanded?
c. 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?
d. Elucidate what will happen, in percentage terms, to the number of cans of tennis balls demanded if average household income increases by 20 percent?
e. What will happen, in percentage terms, to the number of cans of tennis balls demanded if the average price of tennis rackets increases 25 percent?