Lili Ltd., a manufacturer of hair-dryer, has derived the following regression function for its hair-dryer:
QK = 2350 - 50.6PK + 11.5PC + 0.38Y+0.02A
(770) (15.9) (52.8) (0.06) (0.007)
Where QK = quantity demanded for Lili's hair-dryer
PK = price of Lili's hair-dryer = $60
Pc = price of its competitor's hair-dryer = $58
Y = household's income = $8,000
A = advertising expenses = $50,000
Standard errors in parentheses
Coefficient of determination = 0.96
Standard error of estimation = 50
Critical t-value at 95% confidence interval is 1.96
a) Indicate the change in the number of hair-dryer purchased per year (QK) for each unit change in the independent variables.
b) Derive the demand curve function for Lili Ltd.
c) If Pensonic reduces its advertising expenses by 5%, what is the impact on quantity demanded for its hair-dryer? (Answer in percent)
d)The finance manager of Lili's has recommended to the marketing manager to increase the price of hair-dryer to $65 so that the firm can increase its revenue. Do you think that this recommendation should be carried out? Support your answer with numerical calculations.
e)Does the regression function have strong explanatory power? Explain.
f) Based on 95% confidence interval, identify the independent variables that have significant effect on the demand for Lili's hair-dryer.
g)g)The marginal cost of the hair-dryer is $28. Is the price of $60 considered the profit maximizing price of the hair-dryer? Support your answer with calculations.
h) At the profit maximizing price, what range of quantity would you expect at 95% confidence interval?
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