Question

A firm calculates a regression equation is calculated to describe the level of expected sales (Q, for quantity) at different price levels (P). The equation that is calculated is equal to Q = 100 - 20P. 23. If the price of a good is equal to 4, how many of their product would this firm expect to sell? 24. If the correlation between price and quantity is equal to -0.4, what is the RP value for this regression, and what does this mean? 25. Name at least on assumption that must be made for this regression to be the best way to I predict the sales for this product. 4 14 View as Text

Answer 1

Solution :-

Given that :-

Q is the quantity and P is the price.

Regression equation is Q=100-20*P

23 )   P = 4

Therefor Q = 100 - 20 * 4

Q = 100 - 80

Q = 20

## Therefor if the price of the goods is 4 then expected quantity should be 20

24) Correlation (r) = -0.4

R^2 = -0.4 * -0.4

R^2 = 0.16

Coefficient of Determination (R^2) is 0.16 and it means there is only 0.16 (16%) variation explained by the given data.

25) The most important assumption here is that there should be linear relationship between quantity and price.