The ATV Company produces a specialty cement used in the construction of roads. ATV is a price-setting firm and estimates the demand for its cement using a demand function in the linear form:
Q = f (P, M, PR)
where Qc = demand for cement/month (in yards) Pc = the price of cement per yard, M = country’s tax revenues per capita, and PR = the price of asphalt per yard. The manager of ATV obtained the following results in her attempt to estimate the demand for cement in the succeeding months. The results are presented below:
DEPENDENT VARIABLE
Qc
R- SQUARE
F-RATIO
P-VALUE ON F
OBSERVATIONS
64
0.8093
84.872
0.0001
VARIABLE
PARAMETER ESTIMATE
STANDARD ERROR
T-RATIO
P-VALUE
INTERCEPT
8.20
4.01
2.04
0.0461
PC
-3.54
1.64
-2.16
0.0357
M
0.64287
0.19
3.38
0.0014
PA
0.7854
0.38
2.07
0.0439
If the price of asphalt (PR) decreases by 15, what will happen to the estimated quantity of cement demanded?
Explain the value of the coefficient of determination and the overall significance of the model.
Calculate the price elasticity, cross-price elasticity, and income elasticity of demand for cement. Explain these figures.
Write the resulting regression equation.
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