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a. Using the data in Table 1, specify a linear functional form for the demand for Combination 1
meals, and run a regression to estimate the demand for Combo 1 meals.
b. Should you use the ordinary least-squares (OLS) method or the two-stage least-squares method
(2SLS) method for estimating industry demand for rutabagas? Explain briefly.
c. Using statistical software, estimate the parameters of the empirical demand function specified in
part a. Write your estimated industry demand equation for rutabagas.
d. Evaluate your regression results by examining signs of parameters, p-values (or t-ratios), and the
R2.
e. Discuss how the estimation of demand might be improved.
f. Using your estimated demand equation, calculate an own-price elasticity and an advertising
elasticity. Compute the elasticity values at the sample mean values of the data in Table 1.
Discuss, in quantitative terms, the meaning of each elasticity.
g. If the owner plans to charge a price of $4.15 for a Combination 1 meal and spend $18,000 per
week on advertising, how many Combination 1 meals do you predict will be sold each week?
h. If the owner spends $18,000 per week on advertising, write the equation for the inverse demand
function. Then, calculate the demand price for 50,000 Combination 1 meals.
