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Bob's Underground, a limited liability corporation specializing in new rap artists (B

Economics

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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?