# Principles of Managerial Economics (PDF)

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Running Head: MANAGERIAL ECONOMICSManagerial EconomicsName of the StudentName of the UniversityCourse ID
MANAGERIAL ECONOMICS2Part 1Answer aThe demand function for Multipurpose Double-Sided Magic pan is given asQM=250+30Y+10A+5PT10PMQM: Quantity of Magic Pan demanded PM: Price per unit of Magic PanPT: Price per unit of another brand of panY: Income level per householdA: Advertising expenditurei) In the demand equation, coefficient of income has a positive sign. The microeconomictheory of demand suggests that for a normal good, an increase in income leads to an increases indemand. The income coefficient thus has the expected sign. Firms promote their product throughadvertising. The adverting thus likely to have a positive impact on demand. The coefficient ofadvertising here found to have a positive sign. For substitute goods, demand of a productchanges in response to change in price of the substitute good. Price of one good has a positiveeffect on demand of the substitute. Coefficient of price of another band of pan has a positivesign. Sign of the estimated coefficient thus goes in line with economic theory. Lastly, own priceof the magic pan has a negative sign. This is again supported by economic theory of law ofdemand which depicts an inverse relation between demand and own price.
MANAGERIAL ECONOMICS3ii)The value of R square is given as 0.87. The R square value is high and close to 1. Thismeans that own price, price of another brand of pan, income level and advertising togetherexplain 87% variation in the demand of quantity demanded of Magic Pan. The R square is ameasure of goodness of fit. Based on the high value of R square, the estimated equation can beexpected. iii) In order to test statistical significance of the coefficient, the t ratio of each of the coefficientneeds to be estimated. If the absolute value of computed t is greater than 2 which is the critical tvalue at 95 percent level of significance then the variable is said to be statistically significant.t=coefficientStandarderrorofthecoefficientt ratios VariableCoefficient Standard errort -value PM-104-2.5PT541.25Y3074.29A103.52.86From the above table, it has been observed that among the four explanatory only the variablerepresenting price of another brand of pan has computed t value less than 2. Therefore, all theindependent variables except PT are statistically significant.iv)

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