Question:
(a) The regression results for the quantity demanded of good X is given by
ln QX = 1220 - 9.5 ln PX - 2.21 ln PY + 1.01 ln M
t values (5.3) (-5.12) (-2.15) (5.41)
Adjusted R2 = 0.96 F statistics = 160.20 P value = 0.001
Where QX is the quantity demanded of X, PX is the price of X, PY is the price of Y and M is the consumer income. Evaluate the above regression and discuss how these results may be useful to a manager.
(b) The Wall Street Journal reports that the prices of PC components are expected to fall by 5 to 8 percent over the next six months. With the aid of diagrams, explain the likely impact and what the implications are for a manager in the following cases:
(i) Case1: If you are the manager of a small firm that manufactures PCs.
(ii) Case 2: If you are the manager of a small software company.