Using Linear Regression Analysis, Jack's Boot Company Estimated Its Demand

question 31

Essay

Using linear regression analysis, Jack's Boot Company estimated its demand function for a popular riding boot and achieved the following results:
Q_B = 445 - 6.57P_B + 1.35P_C + .25A
where
Q_B = quantity sold per month of the riding boots
P_B = price of the riding boot
P_C = price of a competing company's boot
A = monthly advertising expenditures
a. How can Jack's use this information to find its price, income and cross price elasticity of demand?
b. What would an R² of 0.92 indicate?
c. Can you think of a potentially important variable that Jack's has ignored in its demand analysis?

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Definitions:

Sensory Specific Satiety

The reduced desire to continue consuming a particular food due to the sensory properties (taste, smell, etc.) of that food.

Variability Hypothesis

A now-discredited theory that suggested there is greater variability in physiological and intellectual development among males than among females.

Ventromedial Hypothalamus

A region of the brain involved in regulating hunger, satiety, and energy homeostasis.

Hypothalamus

A region of the brain that plays a central role in controlling mood, hunger, thirst, temperature, and other autonomic functions by regulating hormonal activity.