You are managing a large hat company. The marketing departme…
You are managing a large hat company. The marketing department submits a report to you about the demand for your company’s hats. In the report is the following estimated monthly demand function: Qd = 30,423 – 32.1 × P + 44.8 × INCOME + 61.2 × PALTERNATIVE + 180.5 × RAINFALL (889.2) (14.0) (13.9) (21.2) (161.1) In this regression, P is the price of your product, Income is average income in thousands of dollars, PALTERNATIVE is the price of another product, RAINFALL is the amount of rain in the month, and the numbers in parentheses below the coefficients are the standard errors of the estimated coefficients directly above them. The R2 statistic for the regression is 0.87. Is the product a normal good or an inferior good? Explain whether the alternative product is a complement or a substitute for your product. Are you (statistically) confident about your answer? Explain. These are the only data you have, so you cannot ask your analysts to include other variables. Aside from this, would you ask your analysts to make changes to the regression they gave you and re-estimate the equation? If so, what would you ask; if not, why not?
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