Question

Stonebuilt Concrete produces a specialty cement used in construction of roads. Stonebuilt is a price-setting firm and estimates the demand for its cement by the state department of transportation using a demand function in the nonlinear form:

Q = a P^b M^c P ^d_R

where Q = yards of cement demanded monthly, P = the price of Stonebuilt’s cement per yard, M = state tax revenues per capita, and PR = the price of asphalt per yard. The manager at Stonebuilt transforms the nonlinear relation into a linear relation for estimation. The estimation results are presented below:

DEPENDENTVARIABLE F-RATIO LNQ R-SQUARE P-VALUE ON F OBSERVATIONS: 64 0.8093 84.872 0.0001 PARAMETER STANDARD T-RATIO VARIABLE ESTIMATE ERROR P-VALUE INTERCEPT 8.20 4.01 2.04 0.0461 -3.54 -2.16 LNP 1.64 0.0357 LNM 0.64287 0.19 3.38 0.0014 LNPR 2.07 0.7854 0.38 0.0439

If tax revenue per capita (M) increases 10%, the estimated quantity of cement demanded will

increase more than 1% but less than 5%.

increase more than 5% but less than 10%.

increase more than 10%.

increase by less than 1%.

Answer 1

Answer Regression s given y D.7854 LnCPR) Ln (0) = 8.20 + 0.64287 Ln(M) fartially Diffeumling Bath Sides wih respet Mwe get D+o.4428 7 + 0 8м O.64287 M => M O.6287 M 0.L4287(0 Change in M) o chanfe n A Chauge Nete /2A M by c hen Thus t wc increae M-17. 0'64287 cement Mene uantiy ueslale by 0 Hence Th demand 64237 corgrect amswer u (d) Increase by Less tuan 1