Question

Bob’s Underground, a limited liability corporation specializing in new rap artists (B.U. LLC, rap) has the following demand function:

Q = a + bP + cM + dR

where Q is the quantity demanded of the most popular product B.U. sells, P is the price of that product, M is income, and R is the price of a related product. The regression results are:

Adjusted R Square	0.7514
Independent Variables	Coefficients	Standard Error	t Stat	P-value
Intercept	6309.15	87.382	72.202	5.17E-37
P	-5.201	1.039	-5.006	1.96E-05
M	0.0026	0.001	2.080	0.0456
R	2.10	1.131	1.856	0.0726

1. Discuss whether you think these regression results will generate good sales estimates for B.U. LLC, rap.
   
   Now assume that the income is $60,200, the price of the related good is $17.95, and B.U. chooses to set the price of its product at $18.49.
   

b.   What is the estimated number of units sold given the data above? (round to nearest unit; no decimals)

c.   What are the values for the own-price, income, and cross-price elasticities?

d.   If P increases by 4%, what would happen (in percentage terms) to quantity demanded?

e.   If M increases by 3%, what would happen (in percentage terms) to quantity demanded?

f.    If R decreases by 5%, what would happen (in percentage terms) to quantity demanded?

Answer 1