Question

Question 1.

A firm is experiencing theft problems at its warehouse. A consultant to the firm believes that the dollar loss from theft each week (T) depends on the number of security guards (G) and on the unemployment rate in the county where the warehouse is located (U measured as a percent). In order to test this hypothesis, the consultant estimated the regression equation T = a + bG + cU and obtained the following results:

Number of observations = 32

R² = 0.7793

F ratio = 42.38

P value on F ratio = 0.0001

Variables	Parameter Est.	Standard Error	T - ratio	P - value
Intercept	5150.43	1740.72	2.96	0.0068
G	- 480.90	130.66	- 3.68	0.0012
U	211.0	75.0	2.81	0.0096

Based on the above information

a) Is hiring one more guard per week decrease or increase the losses due to theft at the warehouse per week?

b) What is the amount of increase or decrease in loss? Is that amount per week or per month or per year?

c) Now if the firm hires 6 guards and the unemployment rate in the county is 10% (U = 10), what is the predicted dollar loss to theft per week?

d) Will one percent increase in the level of unemployment in the county results in an increase or decrease in losses due to theft per week ?

e) What is amount of increase or decrease in losses due to theft per week (due to 10% unemployment rate) ?

Question 2.

Use the following demand and supply functions

              Demand:    Q _D = 900 - 60P

Supply: Q _S = - 200 + 50P

a) What is the equilibrium price and output?

b) Let supply remain constant; an increase in income causes consumers to be willing and able to buy 220 more units at each price than they were previously. What is the new equilibrium price and quantity?

c) Show that If the price is currently $11, then there is a surplus.

Answer 1

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