Case 9

Erika Canales

ECON 3305- Homework-2

Question 1: Ch 4

A. In order to make the log-linear equation into a linear form, you have to multiply the equation by natural log (ln).

Q=aH^bS^C

lnQ=lna+blnH+clnS

Q=a+bH+cS

B. The coefficients b and c show the elasticity of demand in a log relation equation. If the number of salespersons increased by 20% the percentage increase in daily sales would be 4.5%.

Q=c*S

Q=.2550*20

Q=4.5%

C. It can be tested by the F Test. The calculated value of F goven in table is 29.97 for low values of p value. Therefor the test is significant for major confidence level of interval.

D. The percentage of 54.52%, which is R-square, is the explained variation part of the equation.

E. Tested by the t-Test with 95% confidence.

Calculated Value of t is 3.79= .9162/.2413

Table value of t with 51 degree of freedom (53-2) is between 2 and 2.02.

The calculated value is higher= intercept is significant

If H and S both equal 0, then sales will be 0 because the equation is exponential and not linear.

F. Tested by the t-Test with 95% confidence.

Calculated Value of t is 3.44 = .3517/.1021

Table value of t with 51 degree of freedom (53-2) is between 2 and 2.02.

The calculated value is higher= intercept is significant

Q=bH

Q=.3517*10

Q=3.517%

If the dealership decreases its hours of operations by 10%, then the sales will decrease 3.517%

Question 2: Ch. 5

Every employee is different depending on the situation or age they are in. For example a young person would rather the high wage because it more useful and most young people do not use their insurance that often. The marginal utility of higher wages is higher than benefits for a young employee. In the other side an older person with higher wages would rather the benefits since they might visit the doctor more often. The marginal utility of benefits is higher than wages for this older employee.

Graph:

Wages...