A Certain Type of Rare Gem Serves as a Status $$E ( y ) = \beta _ { 0 } + \beta _ { 1 } x + \beta _ { 2 } x ^ { 2 }$$

question 106

Multiple Choice

A certain type of rare gem serves as a status symbol for many of its owners. In theory, for low prices, the demand decreases as the price of the gem increases. However, experts hypothesize that when the gem is valued at very high prices, the demand increases with price due to the status the owners believe they gain by obtaining the gem. Thus, the model proposed to best explain the demand for the gem by its price is the quadratic model $$E ( y ) = \beta _ { 0 } + \beta _ { 1 } x + \beta _ { 2 } x ^ { 2 }$$
where $y =$ Demand (in thousands) and $x =$ Retail price per carat (dollars) .
This model was fit to data collected for a sample of 12 rare gems.

$\begin{array} { l r r r r } \text { VARIABLES } & \begin{array} { r } \text { PARAMETER } \\ \text { ESTIMATES } \end{array} & \text { STD. ERROR } & \text { PARAMETER } = 0 & \text { PR > |T| } \\ \text { INTERPCEP } & 286.42 & 9.66 & 29.64 & .0001 \\ \mathrm { X } & - .31 & .06 & - 5.14 & .0006 \\ \mathrm { X } \cdot \mathrm { X } & .000067 & .00007 & .95 & .3647 \end{array}$
Does there appear to be upward curvature in the response curve relating $y$ (demand) to $x$ (retail price) ?

• A) Yes, since the value of \(\beta _ { 2 }\) is positive.
• B) Yes, since the \(p\)-value for the test is less than .01.
• C) No, since the value of \(\beta _ { 2 }\) is near 0 .
• D) No, since the \(p\)-value for the test is greater than .10.

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Definitions:

Milling Machine Time

The duration or amount of time a milling machine is used in the production process, often considered a manufacturing overhead cost.

Additional Minute

An extra unit of time added to a process or activity beyond the original plan.

Existing Capacity

The current maximum level of output that a company can achieve with its available resources, such as facilities, equipment, and workforce.

Variable Selling Expense

Costs incurred from selling a product that vary directly with the number of units sold, such as commissions and shipping costs.