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Group B

Kabita Bhatta (19305)


Safal KC (19312)
Aarati Kafle (19313)
Samsrita Manandhar (19321)
Grishma Shakya (19329)
Rakshya Shakya (19331)
Model 2: OLS, using observations 1-10
Dependent variable: Quantity

Coefficient Std. Error t-ratio p-value


const 135.148 20.6530 6.544 0.0006 ***
Price −0.143124 0.0594248 −2.408 0.0527 *
Advertising 0.538160 0.635600 0.8467 0.4296
Distance −5.78394 1.25514 −4.608 0.0037 ***

Mean dependent var 53.10000 S.D. dependent var 16.42119


Sum squared resid 505.9135 S.E. of regression 9.182533
R-squared 0.791539 Adjusted R-squared 0.687309
F(3, 6) 7.594130 P-value(F) 0.018196
Log-likelihood −33.80829 Akaike criterion 75.61658
Schwarz criterion 76.82692 Hannan-Quinn 74.28884

By using Gretl, the above data is ascertained:

i) The demand function for the company’s unit,


Q= 135.15-0.14P+0.54A-5.78D
ii) Other things remaining constant, if the company raised rents at one complex by $100, the
number of units rented will decrease by 14 units, which is shown by
Q= -0.14*P
I.e. Q= -0.14*100 = -14
iii) We know,
Price elasticity of demand, ŋ= (P/Q)*(dQ/dP)
= (420/53.1)*(-0.14)
= -1.1
Here,
dTR/dP = Q(1+ŋ)
= 53.1 * (1-1.1)
= -5.31
The company’s total revenues would decrease by $5.31 if the company raised rents at an
apartment building.
iv) From the above information, it can be concluded that the demand is elastic since ŋ < -1 and
dTR/dP < 0. When the change in price is relatively low than the relative change in quantity
demanded, the demand is elastic. When the rental price is raised by $100, the quantity
demanded decreases by 14 units. When rent is raised at an average by $1, quantity
demanded will decrease , hence total revenue will decrease by $5.31. Therefore an increase
in price will decrease total revenue.