Economics for Management

In the tutorial classes we constructed, using Excel, a simple linear regression model of the demand for beef. The model was of the form:

 

 

 

Where QB was defined as the quantity (volume, 2001=100) of beef (all beef); PB was defined as the average price ($/lb) of beef (all beef) and Y was defined as disposable personal income.

 

Using the Livestock Marketing Information Centre and the US Bureau of Economic Analysis websites collect data for January 2004 to December 2007 so that you can estimate the regression model

 

 

 

Where:

QC          is the quantity (volume, 2001=100) of chicken (all chicken)

PC           is the average price of chicken (all chicken) ($/lb)

 

  1. Explain the difference between arc and point elasticity of demand. Why do economists calculate elasticity?

 

  1. Assume that the price of chicken is $1.50/lb currently.  Using your regression model calculate the arc and point elasticity of demand if the price of chicken rises by 20%

 

  1. Using your estimated regression model obtain the equations for total and marginal revenue.  Assuming that the total cost of producing chicken is $0.48 per pound (lb) produced, calculate the quantity and price a monopolist would set to maximise profit.

 

Using the Livestock Marketing Information Centre and the US Bureau of Economic Analysis websites collect data for January 2004 to December 2007 so that you can estimate the regression model

 

 

 

Where:

QC          the quantity (volume, 2001=100) of chicken (all chicken)

PC           is the average price of chicken (all chicken) ($/lb)

PT           is the average price of turkey (all turkey) ($/lb)

PP           is the average price of pork (all pork) ($/lb)

Y              is disposable personal income

 

  1. Using your estimated regression model calculate the cross price elasticity of demand with respect to the price of turkey and the price of pork.  Based on your findings can you identify whether turkey and pork are substitute or complementary goods?

 

  1. Using your estimated regression model calculate the income elasticity of demand.  Based on your findings can you determine whether chicken is a normal, superior or inferior good?

 

  1. Briefly explain the statistical difficulties that economist face in attempting to estimate demand functions using regression analysis?

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