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Wilpen Company A Price Setting Firm Produces Nearly 80 Percent of

Wilpen Company produces 80% of tennis balls in the US. They estimate quarterly demand (Q) using a linear model relating Q to price (P), income (M), and racket price (PR). The regression found the signs of the coefficients for P, M, and PR were consistent with demand theory. Given current values for P, M, and PR, the estimated demand, elasticities, and effects of price, income, and racket price changes can be calculated.

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179 views1 page

Wilpen Company A Price Setting Firm Produces Nearly 80 Percent of

Wilpen Company produces 80% of tennis balls in the US. They estimate quarterly demand (Q) using a linear model relating Q to price (P), income (M), and racket price (PR). The regression found the signs of the coefficients for P, M, and PR were consistent with demand theory. Given current values for P, M, and PR, the estimated demand, elasticities, and effects of price, income, and racket price changes can be calculated.

Uploaded by

trilocksp Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Solved: Wilpen Company a price setting firm produces

nearly 80 percent of
Wilpen Company a price setting firm produces nearly 80 percent of

Wilpen Company, a price-setting firm, produces nearly 80 percent of all tennis balls purchased
in the United States. Wilpen estimates the U.S. demand for its tennis balls by using the following
linear specification:
Q = a + bP + cM + dPR
where Q is the number of cans of tennis balls sold quarterly, P is the wholesale price
Wilpen charges for a can of tennis balls, M is the consumers’ average household income, and
PR is the average price of tennis rackets. The regression results are as follows:

a. Discuss the statistical significance of the parameter estimates â, bˆ, cˆ, and dˆ using the p
–values. Are the signs of bˆ, cˆ, and dˆ consistent with the theory of demand?
Wilpen plans to charge a wholesale price of $1.65 per can. The average price of a tennis racket
is $110, and consumers’ average household income is $24,600.
b. What is the estimated number of cans of tennis balls demanded?
c. At the values of P, M, and PR given, what are the estimated values of the price (Ê), income
(ÊM), and cross-price elasticities (ÊXR) of demand?
d. What will happen, in percentage terms, to the number of cans of tennis balls demanded if the
price of tennis balls decreases 15 percent?
e. What will happen, in percentage terms, to the number of cans of tennis balls demanded if
average household income increases by 20 percent?
f. What will happen, in percentage terms, to the number of cans of tennis balls demanded if the
average price of tennis rackets increases 25percent?

Wilpen Company a price setting firm produces nearly 80 percent of

ANSWER
https://solvedquest.com/wilpen-company-a-price-setting-firm-produces-nearly-80-percent-of/

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