Problem
You work for a company that produces sweatshirts and have been asked to establish a demand analysis for the product. You review similar studies for similar products and decide that the demand relation is a linear function of price and income, [QD = a - bP + cM]. Where P is price per pair, M is average household income and QD is quantity demanded. You have collected data for the last 2 years on these variables in a spreadsheet. Use excel to calculate the least squares estimate of the demand function for the sweatshirts and provide an analysis of the result by doing the following:
• Show the regression output
• Provide the estimated demand function
• Are the signs estimated by the parameter supported by the economic theory? Explain.
• Conduct significance tests of the coefficients estimated through t-tests and p-values as well as evaluate the overall regression line fit
• Forecasts for similar sweatshirts and the average household income are estimated to be $30 and $3500 next month respectively. What will the predicted value of sweatshirt sales through your company be?