A manufacturer of computer workstations gathered average monthly sales figures from its 56 branch offices and dealerships across the country and estimated the following demand for its product:
(5,234) (1.29) (175) (0.12) (0.17) (0.13)
The variables and their assumed values are
Q = Quantity
P = Price of basic model = 7,000
A = Advertising expenditures (in thousands) = 52
= Average price of a personal computer = 4,000
= Average price of a mini computer = 15,000
= Average price of a leading competitor's workstation = 8,000
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. Conduct a t-test for the statistical significance of each variable. In each case, state whether a one-tail or two-tail test is required. What difference, if any, does it make to use a one-tail versus a two-tail on the results? Discuss the results of the t-tests in light of the policy implications mentioned.
c. Suppose a manager evaluating these results suggests that interest rates and the performance of the computer (typically measured in millions of instructions per second, or MIPS) are important determinants of the demand for workstations and must therefore be included in the study. How would you respond to this suggestion? Elaborate.