Instruction 16-2
a Certain Type of Rare Gem Serves as a Status

question 55

Multiple Choice

Instruction 16-2
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 hypothesise that when the gem is valued at very high prices,the demand increases with price due to the status owners believe they gain in obtaining the gem.Thus,the model proposed to best explain the demand for the gem by its price is the quadratic model:
Y = β₀ + β₁X + β₂X² + ^ε
where Y = demand (in thousands) and X = retail price per carat.
This model was fit to data collected for a sample of 12 rare gems of this type.A portion of the computer analysis obtained from Microsoft Excel is shown below:
$\begin{array}{|l|l|l|l|l|l|}\text { SUMMARY } &output & \\\hline \text { Regression } & \text { Statistics } & \\\hline \text { Multiple R } & & 0.994 \\\hline \text { R Square } & & 0.988 \\\hline \text { Std. Error } & & 12.42 \\\hline \text { Observations } & & 12\\\hline\\\hline\text { ANOVA }\\\hline & \text { dff } & \text { SS } & \text { MS } & F & \text { Siguif } F \\\hline \text { Regression } & 2 & 115145 & 57573 & 373 & 0.0001 \\\hline \text { Residual } & 9 & 1388 & 154 & & \\\hline \text { Total } & 11 & 116533 & & &\\\hline\\\hline & \text { Coeff } & \text { StdError } & \text { t Stat } & \text { P-Value } \\\hline \text { Intercept } & 286.42 & 9.66 & 29.64 & 0.0001 \\\hline \text { Price } & -0.31 & 0.06 & -5.14 & 0.0006 \\\hline\text { Price Sq } & p .000067 & p .00007 & p .95 & p .3647\\\hline\end{array}$ Note: Std.Error = Standard Error
-Referring to Instruction 16-2,what is the p-value associated with the test statistic for testing whether the quadratic term is necessary in fitting the response curve relating the demand (Y) and the price (X) ?

• A)0.0001
• B)0.0006
• C)0.3647
• D)None of the above.

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Definitions:

Joint Control

A situation in corporate governance where two or more parties agree to share control over a business activity, ensuring decisions are made unanimously.

Deferred Exploration Expenditure

Costs incurred in the exploration of resources which are not immediately expensed but are capitalized and amortized over time.

Accumulated Depreciation

The total amount of a tangible asset's cost that has been allocated as depreciation expense since the asset was put into use.

Sundry Liabilities

Various small or infrequent debts and liabilities not classified in the main liabilities categories on a company's balance sheet.