1) A)

Regression Statistics
Multiple R 0.9488235 1- Based on t-stat |13.1|&|-7.3|, both are greater than 2, so the corresponding parameter estimate is
statistically different from zero which represent a good regression fit for 95% & 99% confidence.
R Square 0.9002661
2- R-Square equals to 0.9 which is close enough to 1 to indicate a “good” fit.
Adjusted R Square 0.8836438
3- F statistics equals to 54.1, the greater the F-statistic, the better the overall regression fit.
Standard Error 1.0220304 4- P-value is another measure of the F-statistic. Lower P-values are associated with better overall
Observations 8 regression fit.

ANOVA
Significance
df SS MS F F
56.57272 54.16009
Regression 1 56.57272291 3 7 0.000322352
1.044546
Residual 6 6.267277091 2
Total 7 62.84

Coefficient
s Standard Error t Stat P-value Lower 95% Upper 95% Lower 99.0% Upper 99.0%
13.10740
Intercept 11.975807 0.913667169 7 1.216E-05 9.740144009 14.21147006 8.588451768 15.3631623
0.000322 -
X Variable 1 -5.826233 0.791677194 -7.359354 4 -7.763397357 3.889068741 -8.761319262 -2.891146837

B) R2 is 0.90 and adjusted R2 is 0.88. R2 measure the variation in price only while adjusted R2 adjusted to take into account the number of
variables included in the regression.

C) Yes, F statistics equals to 54.1, the greater the F-statistic, the better the overall regression fit. P-value is another measure of the F-statistic.
Lower P-values are associated with better overall regression fit.
D)

Quantity Price Estimated Q Elasticity Calculation Examples

1.5 1.9 0.9060 -12.2189 Estimated Q = a + bx = 11.976 - 5.82*1.9 = 0.906
2.2 1.35 4.1104 -1.9135 Elasticity = b*(P/Q) = -5.826*(1.9/0.906) = -12.22
4.4 1.25 4.6930 -1.5518
5.9 1.2 4.9843 -1.4027
6.5 0.95 6.4409 -0.8593
7 0.85 7.0235 -0.7051
8.8 0.73 7.7227 -0.5507
10.1 0.25 10.5192 -0.1385

E)

Quantity Price ln (Quantity) ln (Price)

1.5 1.9 0.40547 0.64185
2.2 1.35 0.78846 0.30010
4.4 1.25 1.48160 0.22314
5.9 1.2 1.77495 0.18232
6.5 0.95 1.87180 -0.05129
7 0.85 1.94591 -0.16252
8.8 0.73 2.17475 -0.31471
10.1 0.25 2.31254 -1.38629
 Regression Statistics
Multiple R 0.7844539 1- Based on t-stat |9.6|&|-3.1|, both are greater than 2, so the corresponding parameter estimate is
R Square 0.6153679 statistically different from zero which represent a good regression fit for 95% & 99% confidence.
Adjusted R 2- R-Square equals to 0.6 which is not close enough to 1. It indicates a “normal” fit which is lower than
0.5512625 the linear regression fit.
Square
3- F-statistics equals to 9.6, it is much lower than the linear F-statistics which represent normal overall
Standard Error 0.4501857
regression fit.
Observations 8
4- P-value is increased compared to linear regression. Lower P-values are associated with better overall
regression fit.
ANOVA
df SS MS F Significance F
1.945466 9.599321
Regression 1 1.945466862 0.021162959
9 2
0.202667
Residual 6 1.216002771
1
Total 7 3.161469633

Coefficient Standard Lower Upper

t Stat P-value Lower 95% Upper 95%
s Error 99.0% 99.0%
9.557840 0.93837200 2.12767167
Intercept 1.5330218 0.160394169 7.491E-05 1.140551447 1.925492234
2 3 7
0.17024347
X Variable 1 -0.8658962 0.279476691 -3.098277 0.021163 -1.549751071 -0.182041414 -1.90203596
5

F) Based on t-stat |9.6|&|-3.1|, both are greater than 2, so the corresponding parameter estimate is statistically different from zero which
represent a good regression fit for 95% & 99% confidence.
G) R2 equals to 0.6 which is not close enough to 1. It indicates a “normal” fit which is lower than the linear regression fit.

H) Equals to the estimated coefficient of ln(Price) which is 0.865.

I)

Price a b prediction Price a b prediction

Linear 0.95 11.976 -5.826 6.4413 Nonlinear 0.95 1.533 -0.866 4.8424
2) Qxd = 100 - 8*4 + 6*2 - 10 = 70 Cross-price elasticity of good x with respect to the price of good y = 6*2/70 = 0.17

3) Coefficient of ln (Py) is the elasticity which equals to -1.6 (negative). Therefore, these goods are complements.

4) Coefficient of income is -5. Therefore, it is an inferior good. Coefficient of the price of DVDs is -2.1 which these goods are complements.

5) In the short term, consumer may not react immediately to a price change depending on their situations, they might already bought their
needs, made plans for consumption or did not expect the price change. Therefore, they will react less in the short run compared to the long
run where they will adjust their quantity demanded.

6) E = -1.25 which is an elastic. In a linear demand function, it corresponds to the upper segment. MR=P∗ ( 1+EE )=10∗( 1−1.25
−1.25 )
=2

Given that, a price increase will increase the marginal revenue. So as a manger, I would increase the price of good.

7) A) By MRS Mitchell need to give up 1 unit of X for 2 units of Y to stays on the same indifference curve. Therefore, to increase consumption of
Y by 1 unit, 0.5 unit of X should be given up.

Px 2
B) No. because at the optimal bundle, MRS which equals to 2 should be equal to the price ratio which is MR= = =1
Py 2

C) He should consume more Y and less X to decrease MRS up to 1.

D) MRS should equal to 1, Because optimal consumption bundle will maximize the utility when MRS = 1.
Hani Alharbi (G201468160)