Question

MULTINATIONAL FIRMS & DEMAND DIFFERENCES A multinational firm sells its products both in the U.S. and overseas. Recently, the ownership of this firm became concerned regarding the potential existence of significant differences in the demand for the firm's products between its U.S. and foreign markets. The firm's owners decided to hire a business statistician to determine whether or not their fears were valid. The business statistician collected the following data from 10 of the multinational firm's markets: 1. Unit Sales: monthly unit sales in each market (i.e. the number of units sold during the previous month by the firm in each market); this is a measure of the demand for the firm's products in each market 2. Price: market price per unit for the firm's products in cach market (measured in purchasing power parity dollars to correct for foreign exchange rate differences between the U.S. dollar and foreign currencies in the firm's overseas markets) 3. Income: median income levels for consumers of the firm's products in each market (also measured in purchasing power parity dollars) 4. Market: a dummy variable which was assigned a value of “1” if the data pertained to one of the firm's U.S. markets and a value of "0" if the data pertained to one of the firm's overseas markets The business statistician conducted a regression analysis on the data collected. In the regression analysis, the business statistician used the variables Price, Income, and Market to predict or forecast the variable Unit Sales. The results, obtained by the use of Excel, are given on the following page. A. Analyze and interpret the regression results for the data. B. Does it appear as though the fears of the ownership of the multinational firm are justified? In other words, does it appear as though there exist significant differences in the demand for the firm's products between its U.S. and foreign markets? Explain.

Answer 1

Answer:

a) holding market differences and income constant a per unit increase in price decrease mean unit sales by 10.69. holding market differences and price constant a per unit increase in income increases mean unit sales by 1.04 keeping price an income constant the mean unit sales in overseas market is 183.36, and keeping price and income constant the mean unit sales in united states is 183.36+2.49=185.85 yes there is a significant difference between the firms' goods demand in u.s and overseas as it is clear from the p value of the dummy variable(market), its p value is highly close to zero means this value lies in the tails of normal curve thus this value lies in the rejection region where we reject the null hypothesis of no difference between the unit sales in us and overseas, therefore, we can say there is a significant difference between the sales overseas and in u.s