Question

Please explain step by step

Bob’s Underground, a limited liability corporation specializing in new rap artists (B.U. LLC, rap) has the following demand function: Q = a + bP + cM + dR where Q is the quantity demanded of the most popular product B.U. sells, P is the price of that product, M is income, and R is the price of a related product. The regression results are:

Adjusted R Square 0.7786

Independent Variables	Coefficients	Standard Error	t Stat	P-value
Intercept	2193.39	86.935	25.230	1.09E-22
P	-4.36	1.045	-4.172	0.000215
M	0.0039	0.00132	2.998	0.005224
R	-2.53	1.310	-1.932	0.062276

a. Discuss whether you think these regression results will generate good sales estimates for B.U. LLC, rap.

Now assume that the income is $57,600, the price of the related good is $15, and B.U. chooses to set the price of its product at $13.50.

b. What is the estimated number of units sold given the data above? (round to nearest unit; no decimals)

c. What are the values for the own-price, income, and cross-price elasticities?

d. If P increases by 4%, what would happen (in percentage terms) to quantity demanded?

e. If M increases by 3%, what would happen (in percentage terms) to quantity demanded? f. If R decreases by 5%, what would happen (in percentage terms) to quantity demanded?

Answer 1