Profit Probability Estimation

question 12

Essay

Profit Probability Estimation. Intimate Lighting, Inc., is a rapidly growing lighting accessory outlets that caters to the do-it-yourself home remodeling market. During the past year, 18 stores were operated in small to medium-size metropolitan markets. An in-house study of sales by these outlets revealed the following (standard errors in parentheses):
Standard Error of the Estimate = 500.
Here, Q is unit sales, P is unit price, P_X is the average unit price at competitor stores, A is advertising expenditures, and I is income per capita.
A. Tucson, Arizona was a typical market covered by this analysis. In the Tucson market, "own" price was $60, competitor price was $45, advertising was $13,500, and income was an average $80,000. Calculate and interpret the expected level of unit sales, as well as the 95% and 99% confidence regions for actual sales.
B. Calculate the 95% and 99% confidence regions for actual revenues in the Tucson market.
C. Estimate the probability that the Tucson store made a profit during this period if total costs were $1,735,200.

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Definitions:

Cognitive Biases

Systematic patterns of deviation from norm or rationality in judgment, wherein inferences about other people and situations may be drawn in an illogical fashion.

Stress-Inoculation Therapy

A form of cognitive-behavior therapy that focuses on developing skills that allow the individual to cope with stress.

Exposure Therapy

A psychological treatment that helps individuals confront their fears by gradual and repeated exposure to the feared object or situation.

PTSD

Post-Traumatic Stress Disorder is a psychological condition caused by exposure to or being a witness to a distressing event, marked by recurrent flashbacks, nightmares, and intense anxiety.