Exam 4: Estimating and Forecasting Demand

Suppose that the "goodness of fit" of an equation is nearly perfect. What is the value of the R2 statistic in this case?

Carefully explain why adjusted R² is always less than R².

What role does uncertainty play in forecasting? Explain.

Calculate the standard error of a regression equation if the sum of squared errors of the observations is 625 and the degrees of freedom in the regression is 25.

A regression analysis is said to suffer from multicollinearity when:

How can regression analysis use uncontrolled data to estimate demand?

Which of the following is the best definition of a controlled market study?

A regression analysis is assumed to be free of serial correlation when the Durbin-Watson statistic for the regression is approximately equal to:

Why is identification a problem in demand estimation? What management errors might occur if a demand relationship is not properly identified?

Is it always worthwhile gathering more information about customer needs and preferences?

Which of the following is true of barometric models?

Which of the following is true of uncontrolled market data?

What are the major advantages and drawbacks of using controlled market studies to estimate demand?

An equation's root mean squared error is:

Rail Tours, Inc. sells packaged tours on rail lines, including gourmet meals and a reserved bed. The most popular tours are in the autumn, when foliage colors are at their peak. The overnight package for Saturday and Sunday morning are especially heavily booked. A market survey firm has just completed a study in which they conclude that if the package cost is $200 per couple, then Rail Tours can expect to sell 400 spaces on a typical Saturday. If the price is raised to $225, then unit sales will drop to 390. If the price is raised further to $250, unit sales drop to 380. (a) From the data given, write down the demand equation and determine its intercepts. Are there any precautions needed when operating at the extreme ends of the demand curve? (b) The survey firm also reports that if per capita income changes, Rail Tours can expect a large change in bookings. In particular, if per capita income falls by 1%, then bookings will tend to fall by about 2%. Are tour packages a normal good? Explain. (c) If you were responsible for making a forecast for bookings, would you accept this forecast as is? Or would you want additional information about demand? Explain.

An economic variable's trend over time indicates:

The equation Q = a + bt represents:

What are the major advantages and drawbacks of using controlled customer experiments to determine demand?

Serial correlation occurs when:

INSITE Corporation produces advanced analytic software for computer simulations called "Model It". Based on a regression analysis of product sales in the first year after launch, INSITE's marketing department estimates the demand for "Model It" to be: Q_M = 1,200 - 8P_M + 4P_S with adjusted R² = 0.65, and with all of the above coefficients statistically significant. Here, Q_M denotes units sold of "Model It" software, P_M denotes "Model It's" price, and P_S denotes the price of a best-selling statistical software package (with both prices in dollars). (a) Currently, P_M = $200 and P_S = $300. What is the predicted demand for "Model It" software? The price P_S has been unchanged (at $300) during the last 6 months. Given this information, write down the equation for "Model It's" demand curve (with Q_M as the left-side variable). Also determine its inverse demand curve (with P_M as the left-side variable). (b) An industry analyst comments that demand for “Model It” is not very sensitive to changes in the price of the statistical software package PS. (This package does perform some of the same operations as “Model It,” but not as quickly or conveniently.) Carefully assess this contention. Do you agree or disagree? (c) As is true for many information goods, the marginal cost of producing Model It is negligible. However, the company incurred significant costs in developing the product for market (estimated to be about $350,000). Given the estimated demand of part (a), determine the optimal price and quantity for “Model It”. (d) A marketing department analyst realizes that a potentially important determinant of demand for “Model It” software is the price of computer workstations. the regression model and now includes the price of workstations along with the other variables. The new model differs from the original regression of part (a) in the following ways: The adjusted R² increases from 0.65 to 0.78. The coefficient of PM changes from -8 to -10, while the coefficient of P_S is essentially unchanged. The new regression coefficient for PW (the workstation price) has a negative sign. Finally, all three price coefficients are highly significant.Is the new regression equation an improvement over the original? In the new regression,Q_M is observed to be more sensitive to changes in PM than in the original regression. Explainwhy this might be the case?