Question

An analyst is studying airline fares on several routes in the U.S. For each route, she has data on the following variables:

PAX    = Number of passengers on that route (demand)

SW      = 1 if Southwest is present on that route; 0 otherwise

FARE = average price on that route in dollars

The following regression output was obtained. Note that the dependent variable is log(PAX).

Multiple Regression for Log(PAX)	Multiple R	R-Square	Adjusted R-square	Std. Err. of Estimate	Rows Ignored
Summary
	0.2316	0.0537	0.0492	0.711928389	0
	Degrees of Freedom	Sum of Squares	Mean of Squares	F	p-Value
ANOVA Table
Explained	3	18.2209	6.0736	11.9833	0.0000
Unexplained	634	321.3378	0.5068
	Coefficient	Standard Error	t-Value	p-Value
Regression Table						Upper
Constant	10.5229	0.4599	22.8820	0.0000		11.4260
SW	1.4421	0.7158	2.0148	0.0443		2.8477
Log(FARE)	-0.2703	0.0888	-3.0446	0.0024		-0.0960
SW*Log(FARE)	-0.3535	0.1504	-2.3501	0.0191		-0.0581

1. We wish to test if the price elasticity of demand is higher (in absolute value) on routes where Southwest is present compared to the routes on which Southwest is absent.

• What is the test statistic for this test?                                     _____________
• State the p-value for this test.                                                 _____________
• At the 1% level of significance, state your conclusion to this test.

Answer 1

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