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(Solved) Eastern Electric produces a 42-inch flat-screen TV. The company wants to get a better grasp on the sensitivity of the quantity demanded of its

Question: Eastern Electric produces a 42-inch flat-screen TV. The company wants to get a better grasp on the sensitivity of the quantity demanded of its product to various factors that affect it.

You have been hired as a consultant to undertake a study and report your results and analysis to the manager of the company. Based on your knowledge of basic economic theory and your past experience, you determined that the main factors that affect the demand for TV sets are: the price of the product itself (13), Price of related products (TV sets produced by competing companies), PR , and average household income (M). Your assistant collected data on these variables and are provided in the table below.

Monthly Quantity
of TV sets sold
during a given year
(Qd) 		Price of Eastern
Electric's
Televisions
(P) 		Price of Televisions
Produced by Competitive
Companies
(Pr) 		Average Annual
Household income
(M)
250 $900 $1,400 $30,000
400 800 1,500 30,000
330 800 1,200 30,000
360 800 1,200 32,000
445 700 1,200 32,000
380 700 1,000 31,000
440 675 1,000 32,000
400 675 900 32,000
450 630 900 32,000
500 630 950 38,000
440 630 800 38,000
500 595 800 38,000
470 595 750 38,000
520 595 750 42,000
480 595 700 42,000
440 625 700 42,000
410 625 700 39,000
460 625 750 39,000
  1. Specify and describe: (i) a linear demand model, and (ii) a log –linear demand model, that can be used to estimate the demand function for Eastern Electric's television sets. (10 points)
  2. (i) Using the data in the Table I and the models described in question "a", estimate two demand functions for Eastern Electric's television sets and paste your computer outputs here, (10 points)
    (ii) Compare which model (the linear or the log linear) does a better job at explaining the variation in Eastern Electric's television demand (Qd). 'Why?
    c. Provide, based on the estimation results of the preferred model, a complete analysis of your estimation results. To this end, you need to: (1) Conduct significance tests, (ii) conduct evaluation of the estimated demand equation, (iii) interpret the results (explain how sensitive demand is to changes in the determinant factors (variable)). (30 points)

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