Author Question: The demand for hamburgers is estimated from this theoretical model: Q = kPaIbAce, where Q = ... (Read 54 times)

Lobcity

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The demand for hamburgers is estimated from this theoretical model:
 
  Q = kPaIbAce,
  where Q = units per day, P = price per unit, A = advertising budget per month by sellers, I = per capita income of consumers, and e = a random error. In a recent study, one researcher estimated the log-linear form of this equation with regression analysis as:
   log Q = 2.5 - 0.33 log P + 0.15 log I + 0.2 log A.
  Explain what the coefficients of log P, log I, and log A reveal about this product.

Question 2

Refer to Scenario 17.3. If there is no insurance and no fire protection program in place, the expected loss from fire for this company is
 
  A) 0.
  B) 300.
  C) 3,000.
  D) 6,000.
  E) 300,000.



polinasid

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Answer to Question 1

The coefficients of the variables are the respective elasticities of demand. The price elasticity is (-0.33), income elasticity is 0.15, and advertising elasticity is 0.2. These coefficients indicate that the product is relatively price inelastic, is a normal good, and is responsive to advertising outlays by sellers.

Answer to Question 2

C



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