Task: The research department of CFC Railboard estimated the following regression for the demand for its transportation services.
Qx=1-2Px+1.5I+0.8Py-3Pz+1Adv
Where
Qx=quantity of CFC transport in millions of ton-miles per year.
Px=the price of CFC transport in dollars per ton-mile.
Py=the price of Union Atlantic rail transport in dollars per ton-mile.
Pz=the price of Joe the trucker's transport in dollars per ton-mile.
I=total profits of shippers in the market served by CFC in billions of dollars/year
Adv=Advertising expenditures by CFC in millions of dollars per year
This year, the values for explanatory variables are:
Px=$2
Py=$2.50
Pz=$1
I=$4
Adv=$2
Question 1. Estimate the quantity demanded for CFC transport this year.
Question 2. Plot a demand curve for the year, and show the calculations for determining the points used to derive the curve.
Question 3. Estimate the elasticity of demand with respect to each of the explanatory variables.
Question 4. Estimate the quantity demanded next year if CFC reduces its price, and the other explanatory variables change as follows:
Px=$1.8
Py=$2.25
Pz=$1
I=$4.2
Adv=$2.4
Question 5. Plot a demand curve for next year on the same graph as in question 2 above, again showing all calculations.
Question 6. Is Joe the trucker a competitor for CFC Railboard? Explain.