DEMAND THEORY AND ESTIMATION

A Written Analysis of a Case

Presented to Mr. NASH N. REGINIO
Faculty of the Advanced Studies – Graduate School of Business
University of Southeastern Philippines
Bo. Obrero, Davao City

In Partial Fulfillment of the Requirements for the Course

BA 2004/eBA 200 Managerial Economics

JASON S. QUIÑO

OCTOBER 09, 2022

Using SPSS, MS Excel or other statistical software package, run the given data and
answer the
following in MS Word.

Assume that Electronix, Inc., a small startup company that distributes a particular
business machine, has the following monthly data on unit sales (Q), price (P),
advertising expenditures (AD), and personal selling expenditures (PSE) over the past
year.

If a linear relation between unit sales, price, advertising, and personal selling
expenditures is hypothesized, the regression equation takes the following form:

Where Y is the number of units sold, P is the average price per month, is advertising
expenditures, PSE is personal selling expenditures, and is a random disturbance term –
all measured on a monthly basis over the past year.

A. Present the computer results of regression.

B. Estimate the regression equation of on the explanatory variables.
C. Check for consistency in the relationship between quantity demand and the three
explanatory
variables as postulated in demand theory by indicating the change in the quantity
demanded
of the commodity for each unit change in the explanatory variables.
D. Find and interpret the adjusted and the unadjusted coefficient of determination.
E. Test at the 5% level for the overall statistical significance of the regression.
Interpret the
result.
F. Test at the 5% level for the statistical significance of the slope parameters. Interpret
the
result.
G. Specify the final demand model.
H. Estimate the confidence intervals for if P = $2,500, AD = $30,000 and PSE =
$50,000.
Interpret your forecast. (Tip: SEE provides a helpful means for estimating confidence
intervals)

Show all results in two decimal places.

Solution:

The Result for the Regression Analysis derived by using microsoft excel presented in the
picture above:

Equation: Y= - 117.513-0.296 X1 + 0.036 X2 + 0.066 X3

Where Y= Unit Sales

X1= Price

X2= Advertising Expenditures

X3=Personal Selling Expenditures

The coefficient of determination of this case is 0.969720166 which means that the X
variables account for 96.67 percent of the variation in the Y variable. Since there are
multiple X variables, the Adjusted R squares is the most precise percentage that can explain
the variation in the Y variable which is the Unit Sales. As a result, the Price , Advertising
Expenditures and the Personal Selling Expenditures account for 95.84 percent of the Unit
Sales’ variation.

Prob > F = 2.04E-06 or 0.00000204356; which is less than to 0.05

We reject the null hypothesis if we asses the overall statistical level of significance of
regression at 5%. As a result, the x which is the Unit Sales and y variables have a significant
relationship which are the price , advertising expenditures and personal selling
expenditures. Since there is :

A significant relationship between Unit Sales and price because the p-value of Price
is 0.019647168 which is less than the 0.05.

There is no significant relationship between units sale and advertising expenditures

because the P- Value of advertising expenditures is 0.32666239 which is greater
than the 0.05.

Lastly, there is a significant relationship between unit sale and personal spending
expenditures since the P- value of personal spending expenditures is 0.001740562
which is less than the 0.05

So, the price and personal spending expenditures can predict the unit sales for business
machines of the company which the Electronix Inc. over the past year. Meanwhile the
advertising expenditures cannot predict the unit sales when
:

If X1= 2,500

X2= 30,000

X3= 50,000

Y= -117.513-0.296x1+0.036x2+0.066x3

Y= -117.513-0.296(2,500)+0.036(30,000)+0.066(50,000)

Y= -117.513-740+1,080+3,300

Y= 3,522.49

Therefore, we can conclude that the predicted Unit Sales is $3,522.49 id the price is $2,500,
advertising expenditures is $30,000 and the personal spending expenditures is $50,000.