Economy

Case study 1

(a) Estimated regression equation:

Qx = 250.7 - 410.3Px + 240.3Py + 180.3 Pz + 1.23 Y

(b) At 95% confidence level, the independent variable that significant to the depended variable are Price of an “Elegant” women dress (Px), the price of competitors, “Cutie 10” (Pz) and the per capita disposal income (Y).

(c) Increase (↑) in price of an “Elegant” women dress, (Px) by one unit @RM1 will decrease (↓) the quantity demanded (Qx) by 410.3 Units.

↑in Price of a competitors’s dress “Vouge” (Py) by 1 unit @RM1 will ↑the quantity demanded (Qx) by 240.3 units

↑in Price of competitor’s dress “Cutie 10” (Pz) by 1 unit @RM1 will ↑ the quantity demanded (Qx) by 180.3 units

↑ in income per capita (Y) by RM1 will ↑ the quantity demand (Qx) by 1.23 Units.

R2 =0.757 which mean 75.7% of the changes in independend variable is explained by the independents variable where as another 24.3% explained by the factors not included in the model.

The Company should condider including taste and preference and Quality as the other factors to improve on coefficient.

(d) Qx = 250.7 - 410.3Px + 240.3Py + 180.3 Pz + 1.23 Y

Qx= 250.7 – 410.3 (80) = 240.3(75) + 180.3(82.5) + 1.23(5,250)

= 6,781.45

Cross elasticity

“Vouge”’s dress (Py)

∂Qx∂Py × PyQ

= 240.3 × 756781.45

= 2.658 (substitutes)

“Cutie 10”

∂Qx∂Pz × PzQ

= 180.3 × 82.56781.45

= 2.193 (substitutes)

The “Vouge” has higher great to Admire Attire Company.

(e) Price Elasticity

∂Qx∂Px × PxQ

= -410.3 × 806781.45

= -4.84 (˃ 1: Elastic)

Since the price is elastic, Admire Attire should consider reducing its price because this will increase the Total Revenue.

(f) Q ± t n-k (SEE)

= 6781.45 ± 2 (265.6)

= 6250.25 ˂ Q ˂ 7312.65