Question

Family Dentistry is a dental clinic owned and managed by a well-known doctor, Dr. Phillip Williams, who is trained and licensed to practice general dentistry as well as dental surgery. Dr. Williams wishes to use the data on the number of patients treated at his clinic for the last 24 months to estimate demand for the dental care provided by his clinic. Demand for the clinic’s dental care (QD) is specified to be a linear function of the price per visit paid by patients (PFD), average income of households in the town and surrounding areas (M), and the price charged by the competing dentistry, Family and Cosmetics Dentistry Center (PFCDC). (3 pts each)

QD = a + bPFD + cM + dPFCDC

Month QD PFD M PFCDC

1 1894 316 66700 201

2 1914 316 66700 201

3 1489 345 66700 230

4 1531 345 64745 230

5 1625 345 64745 230

6 1585 345 64745 230

7 1577 345 66528 230

8 1509 345 66528 230

9 1496 374 66528 288

10 982 403 66240 288

11 1107 403 66240 288

12 1424 374 66240 259

13 1237 374 66988 259

14 1256 374 66988 259

15 1405 374 66988 259

16 1504 374 67833 288

17 1448 374 67833 288

18 818 431 67833 288

19 1286 403 68540 288

20 105 546 68540 431

21 158 546 68540 431

22 986 431 69920 288

23 1153 403 69920 288

24 1527 368 69920 253

a. Using Excel and the data provided in the table, run a regression to estimate the linear demand function for the clinic’s service. (Copy and paste here your computer printout).

b. Write the equation of the sample regression line here.

c. Test the overall equation for statistical significance at the 5% significance level.

d. Evaluate the statistical significance of the estimated coefficients. Assume that the owner is comfortable using parameter estimates that are statistically significant at the 5% level or better.

e. How much in the total variation in (QD) is explained by the regression equation? How much of the total variation in (QD) is unexplained by the regression equation? What other explanatory variables might be added to this equation to increase its explanatory power.

f. If the clinic charges $450 per visit and the Family and Cosmetic Dental Center (FCDC) charges $300 per visit, and the average household income in the region is expected to be $74,000. What will be the estimated number of visitors to Family Dentistry?

Answer 1