Math 126: Business Administration – Group 7
The Estimated Linear Demand Function
Students:
The demanded quantity is the amount of a good or service that consumers are willing and able to buy at a given price. The Law of Demand states that “Holding everything else constant, when the price of a product fails, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.” The phrase “holding everything else constant” means that only the relation between price and demand is studied while other factors that might affect the willingness of consumers to buy the product are not considered. The demand function expresses how the demand D (the number of items demanded) changes as the unit price p (the price per item) varies.
On the other hand, in statistical modeling, regression analysis is a set of statistical processes for estimating the relationships between a dependent variable and one (or more) independent variable(s). The dependent variable is the main factor you are trying to understand and predict. The independent variable is the factor that influences the dependent variable.
Forecasting the demand for the new Sigma2020 tablets is a challenging decision that the Sigma firm managers are facing. After an intense market research study, as part of their forecasting process, they have decided to consider the sample presented in the table below, where p represents the Sigma2020 tablet price and D is the quantity demanded per day of the new product. Assume that you are part of their team. You can help your colleagues by answering the following questions.
Price p (in dollars)
Quantity Demanded D
400
15
390
25
389
40
378
56
360
140
352
175
330
210
329
245
290
380
250
415
245
450
240
465
1. What type is this data, qualitative or quantitative? Explain. (5 points)
2. What happens with the demand when the price decreases from $352 to $330? (5 points)
3. What happens with the price when the demand increases from 450 to 465? (5 points)
4. Organize your data into vertical columns in an Excel spreadsheet. (10 points)
5. Plot the scatter diagram related to these data in an Excel spreadsheet, where the price p is the independent variable and the demanded quantity D is the depended variable. (15 points)
6. Is there a linear relationship between the price variable p and the demand variable D?
(5 points)
7. Is there a positive or negative co
elation between the demand variable D and the price p? (5 points)
8. Use Excel to find the estimated linear demand function, that is the linear function that best fit the data. Write your answer in the form , where m is the slope and b is the y-intercept. (20 points)
9. Interpret the slope m of the estimated linear demand function found above. (10 points)
10. Use the estimated linear demand function to find the demand co
esponding to the price per unit of $ XXXXXXXXXXpoints)
Additional Online Resources
https:
www.investopedia.com/terms/l/linea
elationship.asp
https:
www.ablebits.com/office-addins-blog/2018/08/01/linear-regression-analysis-excel
https:
www.zweigmedia.com/RealWorld/tutorialsf0/frames1_4B.html
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