Demand Estimation and Forecasting
Deck & Blacker is a maker of small kitchen appliances. Its economistsestimated the following demand for toaster oven using data gathered over 16quarters from 10 major retail distributors of its product. This type of samplewhich involves the use of crosssectional and time series data is referred to asa pooled sample. On the basis of this pooled sample of 160 observations, theeconomist estimated the following linear equation:
Q = 40 − 1.1P + 1.5A + 0.32I + 0.5H + 0.1Pc
(2.5) (0.9) (0.6) (0.12) (0.17) (0.75)
R2 = 0.91 SEE = 2.8 F = 311.30
Numbers in parenthesis are standard errors.
The variables and their forecasted values are:
Q=Quantity demanded (in thousands)
P=Average price (in Euro)=55
A=Advertising expenditures (in thousands)=20
I=Average household income (in thousands Euro)=31
H=Totalnumber of residential (house) sales (in thousands)=10
Pc=Price of a leadingcompetitor (in Euro)=50
a. Should this company try to markets its toaster ovens in upscalegourmet shops where relatively high income level people shop? Explain usingnumbers!
b. How concerned should this company be about price discounts by itsleading competitors? Explain using numbers?
c. Conduct a ttest to check the statistical validity of the estimated equationat 95 percentconfidence.
d. Assuming the value of the variables are given, indicate 95 percentconfidence interval of the forecast demand for toaster ovens.
e. Among which variables you might expect multicollinearity problem.Explain briefly.

Rating:
5/
Solution: Demand Estimation and Forecasting