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[Step-by-Step] The following linear demand specification is estimated for Conlon Enterprises, a price-setting firm. Q=a+bP+cM+dP_R where Q is the quantity

Question: The following linear demand specification is estimated for Conlon Enterprises, a price-setting firm.

\[Q=a+bP+cM+d{{P}_{R}}\]

where Q is the quantity demanded of the product Conlon Enterprises sells, P is the price of that product, M is income, and P R is the price of a related product. The results of the estimation are as follows.

  1. What percent of the variation in the quantity demanded of Conlon Enterprises' product does the model explain?
  2. Are the parameter estimates for the independent variables collectively statistically significant at the 1 percent level? Why?
  3. At the 1 percent level of significance, which parameter estimates are statistically significant?
  4. Does the coefficient on P have the correct sign? Why?
  5. Assume that P = 20, M 40,000, and P R = 30. How many units can Conlon Enterprises expect to sell?
  6. At the prices and income given above, what is the price elasticity of demand?
  7. At the prices and income given above, what is the income elasticity of demand?
  8. At the prices and income given above, what is the cross-price elasticity of demand?

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