An electric holding company is interested in the possible acquisition of other "electricity retailers" expected to be spun off as the industry is deregulated. As the project point person you have been asked to do some preliminary demand analysis in order to better understand this particular market. The firm hired a consultant to collect average values from each of the fifty US states and to generate a cross-sectional demand model (see regression output table below). The final estimated demand function was provided by the consultant as:
Qd = 36,314.7 - 9,937.78 * [Price] + .0889 * [Income] + .021 * [Customers] + 2,197.78 * [Price of Natural Gas]
Select the best response among those possible for the next 6 questions:
18. Ignoring the intercept, which of the variables appears to be the most significantly different from zero?
a Own price
b. Income
c. Customers
d. Price of Natural Gas
19. Which of the following is most likely represents the upper 95% confidence limit for when sales are estimated from the equation?
a. 28,575 (i.e., the sum of the parameter estimates)
b. 16,759 (i.e. the parameter standard error estimates sum)
c. 11,855 (i.e., the estimated standard error)
d. 23,710 (i.e. double the estimated standard error)
20. Estimate the (own) price elasticity of demand. Assume the following: own price is $3, income is $60,000, the market has 1,000,000 potential customers and the price of natural gas is $4. (The following numbers are absolute values.)
A .48
b. .57
c. .72
d. 9937 (the slope coefficient)
21. Assuming price is $3, income is $60,000, the market has 1,000,000 potential customers, and the price of natural gas is $4, estimate the cross-price elasticity (of demand).
a. .14
b. .35
c. .80
d. .21
22. In general which of the following statements best describes the retail market for electricity?
a. The electricity market is not highly price sensitive
b. Electricity is a normal good.
c. A rise in the price of electricity will increase firm revenues.
d. All of the above.
23. In general which of the following statements best describes the retail market for electricity?
a. Natural Gas may be a weak substitute for electricity due to the relatively small parameter value.
b. Natural Gas may be a strong substitute for electricity due to the relatively large parameter value.
c. Natural Gas may be a weak substitute for electricity due to wide confidence range.
d. Natural Gas and Electricity are complements