MANAGERIAL ECONOMICS

(ECO555)

GROUP MEMBERS

NO. NAME ID

1. MUHAMMAD HARIS BIN BAHARRUDIN 2015182661

2. MUHAMAD AMIRUL ZHARIF BIN ALNO’MAN 2015102415

CS242
BACHELOR OF SCIENCE (HONS) ACTUARIAL SCIENCE

PREPARED FOR:

MADAM JAMALIAH BINTI MHD KHALILI

ECO 555 : PROJECT PAPER

Perform a multiple regression on the data set given and answer the following questions

a) Y = 93.63423 - 3.458867506 Price - 0.028643012 Advertising + 0.457606485

Competitor’s Price + 0.471676006 Income

b) Variables that significant = Price

c) The 𝑅 2 is 0.9281, showing that 92.81% of variation in unit sales is explained by the

variation in price, advertising, competitor’s price and income. Another 7.19% is due

to variation of other factors.

d) The signs of coefficients are consistent with economic theory except for advertising.

One ringgit decrease in advertising will decrease unit sales by 0.0286. One ringgit

increases in competitor’s price and income will increase unit sales by 0.4576 and

0.4717 while One ringgit decreases in price will increase unit sales by 3.4589.

e) Regression equation is acceptable because 𝑅 2 is high and there is a significant

variable.

f) Ŷ = 93.63423 - 3.458867506 (11.8) - 0.028643012 (75) + 0.457606485 (10) +

0.471676006 (20)

= 64.68095257

g) At 95% confidence interval = 64.68095257 ± 2(1.290634984)

= 62.0996826 < Ŷ < 67.26222254

Yes, actual demand is within this range

 𝑑𝑌 𝑃
h) Price elasticity of demand = 𝑑𝑃 x 𝑌

11.8
= - 3.458867506 x 64.68095257

= -0.6310 (inelastic)

When the price changes by 1%, the unit sales will change by 0.6310 %. The demand is

inelastic.

𝑑𝑌 𝐼
Income elasticity of demand = x𝑌
𝑑𝐼

20
= 0.471676006 x 64.68095257

= 0.1458

When income increases by 1%, the unit sales will increase by 0.1458%. This product can

be classified as necessity goods.