Economics – Questions 1

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  1. Martin’s Footwear, Inc., of Boston, Massachusetts has retained you to aid the firm in an evaluation of its marketing strategy. Martin’s “Happy Feet” running shoes are marketed through local retail outlets in the eastern United States. A move to extend Martin’s market to Midwestern and western states is currently being contemplated.

A marketing research group conducted an empirical analysis of demand for Martin’s “Happy Feet” during 2014 in thirty-six regional markets and found the following (standard errors in parentheses):

Q = − 720 – 7.5P + 8.4I + 5W − 0.5CA + 6A

(350)   (1.3)    (6.2)   (2.8)  (0.4)    (2.5)

R2 = 87%

Standard error of the estimate = 18

where Q = quantity sold (in thousands of pairs of shoes), P = price (in dollars), I = disposable household income in regional markets (in thousands of dollars), W = weather measured by average temperature (in degrees), CA = competitor advertising (in thousands of dollars), A = Martin’s “own” advertising (in thousands of dollars).

  1. A)Test whether or not the independent variables as a group explain a significant share of demand variation, Q, with 99% confidence.
  2. B)Does competitor’s advertising affect Martin’s sale of running shoes? Test it at the = 0.05 significance level.
  3. C)During a recent month, Happy Feet running shoes average price was $120, the average household disposable income was $50(000), the average monthly temperature was 55°F, competitor advertising expenditure was 150(000), and Martin’s own advertising was 180(000). Assuming this was a typical observation included in the study, derive the relevant demand curve for Martin’s Happy Feet running shoes.
  4. D)Assume the model and data given in part C are relevant for the coming period. Calculate the range within which you would expect to find actual monthly sales revenue with 95% confidence.


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