Homework 2

Question 1,2.

Question 3.

Ŷ = 27694.7112 – 29.7047X1 – 38.9790X2 +362.5126X3 – 31.8893X4 + 0.1622X5

Question 4.

54.41% of variation in demands of packages is explained by variables.

1- 54.41% = 45.59 % of variation in demands of packages is not explained by variables

Another explanatory variable. -> average annual income of consumers. If their income is high, they are
going to demand more packages, or vice versa.

Question 5.

Number of observations= 59= n number of parameters= 5= k a= 0.05 d.f= 53 F= 12.6486( from

excel output )

H0 : b1 =2=3=4=5 = 0 H0 : at least one b 0 ( there is relation ) F critical= 2.398 F= 12.6486> 2.398

(F critical) -- Reject H0
There is significant evidence that at least one coefficient affects demand of packages.

Question 6.

T critical = 1.960

T (price)= |-4.1987| > 1.960 significant

H0: b = 0 HA : b  0

T (related good’s price) = |-6.9733| > 1.960 significant

H0: b = 0 HA : b  0

T (average annual income) = |6.1818| > 1.960 significant

H0 : b = 0 HA : b  0

T (number of hotels at the destination) = |-1.4272|< 1.960 not significant

H0 : b = 0 HA : b  0

T (advertising expense) = |1.7773| < 1.960 not significant

H0 : b = 0 HA : b  0

Significance of intercept. T(intercept) = |4.2703| > 1.960 significant

H0 : b = 0 HA : b  0

T critical= 1.960

First three independent variables have a statistically significant impact on units demanded, however,
“number of hotels at the destination”, “advertising expense” have no significant impact.
Question 7.

Advertising elasticity of demand

Y= 27694.7112 - 29.7047 x 895 - 38.9790x214 – 362.5126x129 – 31.8893x170 + 0.1622x7679 =

35355.9769

Eadvertising = (dQ / d(advertising expense) (advertising expense / Ŷ) = 0.1622x 7679/35355.9769 = 0.0352

since Eadvertising is 0< 0.0352< 1 there is relatively inelastic demand. Demand sensitivity is relatively
inelastic to changes in advertising expense.

Question 8.

Erelated goods price = (dQ / dP) (P / Q) = -38.9790x 214/35355.9769 = - 0.2359 since E related goods price is 0<|-0.2359|
<1

There is relatively inelastic demand. Demand sensitivity is relatively inelastic to changes in the price of
related goods.

Cross- price elasticity of demand.

-0.2359 < 0. Since it is less than 0, products are complements.

Question 9.

95% confidence interval.

Yˆ  (t n k 1 )(SEE)
Tn-k-1= 1.960 SEE= 8464.1489

35355.9769 + 1.960x8464.1489 = 51945.7087 (18766.24;51945.7087)

35355.9769 – 1.960x8464.1489 = 18766.24

Owner of the travel agency likely to reach a demand objective of 50,000 vacation packages per year
(51945.7087) . 95% confidence interval.
Question 10.

Inverse demand curve. We look at price. Because quantity demanded is dependent on the price

Ŷ = 27694.7112 – 29.7047X1 – 38.9790X2 +362.5126X3 – 31.8893X4 + 0.1622X5

X1 x (29.7047) = 27694.7112 - 38.9790X2 + 362.5126X3 - 31.8893X4 + 0.1622X5 - Ŷ

X1= (27694.7112- 38.9790X2 + 362.5126X3- 31.8893X4+ 0.1622X5- Ŷ)/29.7047

P= (27694.7112 – 38.9790 x 214+362.5126 x 129– 31.8893 x 170 + 0.1622 x 7679 – Q)/29.7047=

(61941.6834 – Q)/29.7047