Question

Suppose that you estimate the following regression:

SALES = 5.467-1.034(PRICE)

A) How do you interpret the coefficient on price, assuming price is denominated in dollars and sales are denominated in 1000s of units?

Answer #1

A)

SALES = 5.467-1.034(PRICE)

Here

5.467 is the intercept and

-1.034 is the slope

Here slope is negative. Thus, the direction of the slope is negative.

It shows that there is a negative linear relationship between price and sales.

that is, as the price increases the Sales decrease

The magnitude of slope is 1.034

The value 1.034 implies **as the price increases by $1,
the Sales will decrease by 1.034 thousands of units**

**e.g.**

if price is $1, then

SALES = 5.467-1.034(1) = **4.433 thousand units = 4433
units**

If price increases by $1 to $2, sales will decrease by 1.034 x 1000 = 1034 units

SALES = 5.467-1.034(2) = **3.399 thousand units = 3399
units**

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thank you for yor help.

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