Using Linear Regression Analysis, Empire Roofing Company Estimated Its Demand

question 36

Essay

Using linear regression analysis, Empire Roofing Company estimated its demand function for flat rolled roofing and achieved the following results:
Q_R = 244 - .1057P_R + 1.35P_C + .025I
where:
Q_R = quantity in thousands of square feet per year
P_R = price in thousands per roofing job
P_C = price of a competing company's average bid in thousands)
I = average annual household income
a. How can Empire use this information to find its price, income and cross price elasticity of demand?
b. What would an R² of 0.72 indicate?
c. Can you think of a potentially important variable that Empire has ignored in its demand analysis?

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