Exam 5: Demand Estimation

One-Tail t-tests. Martin's Footwear, Inc., of Boston, Massachusetts has retained you to aid the firm in an evaluation of its marketing strategy. Martin's "Happy Feet" running shoes are marketed through local retail outlets in the eastern United States. A move to extend Martin's market to Midwestern and western states is currently being contemplated. A marketing research group conducted an empirical analysis of demand for Martin's "Happy Feet" during 2008 in thirty-six regional markets and found the following (standard errors in parentheses):

Correlation and Simple Regression. Market Analysis, Inc., has conducted a survey to learn the income characteristics of an N = 10 sample of department store customers. The survey asked each customer his or her age and household annual income. Survey results were as follows The regression equation is: INCOME = 50.4 + 2.03 AGE

A. The identification problem relates to the difficulty encountered in properly isolating dependent variables that influence a given independent variable. B. To accurately model the demand function for a given product, the demand effects of all relevant dependent variables must be incorporated. C. Solving the identification problem is made easier by the fact that many factors influence both demand and supply. D. Accurate demand estimation requires consideration of all relevant independent variables and use of a theoretically appropriate empirical model. E. The process of accurately modeling the link between dependent Y variables and independent X variables is easier for static as opposed to dynamic demand relations.

After controlling for the influence of all X variables, the standard deviation of the dependent Y variable is given by:

Multiple Regression. Maastrict Controls, Ltd., is a regional producer of sophisticated precision control devices. To assess the potential payoff to adopting the recommendations of a Total Quality Management (TQM) seminar attended by managerial staff, the company has decided to analyze the sales effects of price and product quality for a range of leading products. The company recently compiled and used a regression analysis approach to study the following unit sales, price, and product quality information: As a first step in the analysis, the company ran simple regressions of unit sales on each of the potentially important independent variables of price and the percent failure rate (product quality): SALES = 220440 - 35980 PRICE SALES = 178434 - 56659 PRICE + 115808 FAILURE

A method for predicting buyer response to hypothetical changes in product quality is provided by:

In a simple regression model, the correlation coefficient is:

Demand is always reduced by unanticipated changes in:

Demand Curve Estimation. Linux Servers, Inc., is a leading supplier of high-speed servers with enormous storage capacity. Average price and annual unit sales data for the VAX-7500 high-speed machine are as follows: