question archive Bob's Underground, a limited liability corporation specializing in new rap artists (B
Bob's Underground, a limited liability corporation specializing in new rap artists (B
Subject:EconomicsPrice: Bought3
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 0.8257
Independent Variables Coefficients Standard Error t Stat P-value
Intercept 9998.24 72.84 137.26 6.54E-46
P -5.557 2.066 -2.689 0.011
M 0.0039 0.001 3.258 0.003
R 4.92 1.018 4.829 3.27E-05
a. Discuss whether you think these regression results will generate good sales estimates for B.U. LLC, rap.
Now assume that the income is $52,477, the price of the related good is $16.25, and B.U. chooses to set the price of its product at $14.95.
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 decreases by 3%, what would happen (in percentage terms) to quantity demanded?
f. If R increases by 6%, what would happen (in percentage terms) to quantity demanded?
