Question: The Mac Wend Drive-In has determined that demand for hamburgers is given by the following equation:

Q = 205.2 + 23.0A – 200.0Pm + 100.0Pc +0.5I

(1.85) (2.64) (-5.61) (2.02) (4.25)

where Q is the number of hamburgers sold per month (in 1,000s), A is the advertising expenditures during the previous month (in $1,000s), Pm is the price of Mac Wend burgers (dollars), Pc is the price of hamburgers of the company’s major competitor (dollars), and I is the income per capita in the surrounding community (in $1,000s). The t-statistic for each coefficient is shown in parentheses below each coefficient.

a. Are the signs of individual coefficients consistent with predictions from economic theory? Explain.

b. If A = $5,000, Pm = $1, Pc = $1.20, and I = $20,000, how many hamburgers will be demanded?

c. What is the advertising elasticity at A = $5,000?