Dana Ysabelle P.

Marfil
BSA – 16

Q is number of meals served, P is average price per meal (in dollars); Px is the average price
charged by competitors (in dollars); Ad is the local advertising budget for each outlet (in
dollars); and I is average income per household in each service area.

Use the Ordinary Least Squares method to estimate coefficients in the demand equation.

1). Describe the economic meaning and statistical significance of each individual independent
variable in the demand equation.

Coefficientsa
Model Sig.
(Constant) .078
P .000
Ad .010
I .000
Px .000
a. Dependent Variable: Q

Independent variables:
 Average Price per meal (P)
The statistical significance of the average price per meal (P) has a 0% chance that it is
wrong. Therefore, it has a 99.99% chance that it is right which means it is highly significant to
the number of meals served (Q). It proves that B is not equal to 0 which means it is an
alternative hypothesis, we can perform some inferences.
The economic meaning of this independent variable: If price increase by $1, then the
demand will decrease by 19875.954.

 Advertising (Ad)
The statistical significance for advertising (Ad) has a 1.0% chance that it is wrong.
Meanwhile, there’s a 99% chance that it is right. This means that advertising is significant to
the dependent variable (Q). It proves that B is not equal to 0 which means it is an alternative
hypothesis, we may do some inferences.
The economic meaning of this independent variable: Increase in advertising by $1 means
that there will be an increase in the demand by 0.261. Although it may not be a large, it may
still impact the demand of the number of meals served.

 Income (I)
The statistical significance of income (I) has a 0% chance that is wrong. Therefore, it has a
99.99% chance that it is correct. It means that income is highly significant to the number of
meals served (Q). It proves that B is not equal to 0 which means it is an alternative hypothesis,
we can perform some inferences.
The economic meaning of this independent variable: If income increase by $1, then the
demand will increase by 8.780 which will make it as a normal good.
  Competitor Price (Px)
The statistical significance of competitor price (Px) shows that it has a 0% chance that it is
incorrect which means it has a 99.99% chance that it is right. It depicts that competitor price is
highly significant to the dependent variable (Q). It proves that B is not equal to 0 which means
it is an alternative hypothesis, we can do some inferences.
The economic meaning of this independent variable: Increase in competitor price by $1
will result to an an increase in the demand by 15467.936. It increases the demand of the product
for the consumers may make it as a substitute from the product of the competitors.

2) Interpret the R- square

Model R Square
1 .833

R-squared evaluates the scatter of data points around the fitted regression line. It is the
percentage of dependent variable that a linear model explains. Usually, the larger the R-
squared, the better the regression model fits the model.

Based from the SPSS, the computed R-Square was .833 which is portrayed as 83.3%.
It conveys that there is an 83.3% variation in the number of meals served that can be explained
by the four independent variables which are average price per meal (P), advertising (Ad),
competitor price (Px), and income (I).

3) Illustrate the importance of Standard Error Estimate (SEE).

D

The closer the error to

fitted regression line, the
more accurate it is.

As shown in the model summary, the SEE is $ 14875.9450. The standard error estimate
is the measure of accuracy of predictions. In a regression line, the smaller the standard error of
estimate is, the more accurate the predictions are. Thus it tells about the accuracy of the
regression. It is expressed in the units of the dependent variable ($). Accuracy is measured by
the estimated error.

According to the biochemia-medica.com, the computations derived from the r and the
standard error of the estimate can be used to determine how precise an estimate of the
population correlation is the sample correlation statistic.

4) Copy and paste the following data from SPSS output: descriptive statistics, model
summary, and coefficients.
 Descriptive Statistics
Mean Std. Deviation N
Q 598411.5333 33796.53409 30
P 6.9290 .69590 30
Ad 244648.7333 30701.49748 30
I 51043.8333 2847.43965 30
Px 6.1633 .81986 30

Model Summary
Model R R Square Adjusted R Std. Error of the
Square Estimate
a
1 .913 .833 .806 14875.94500
a. Predictors: (Constant), I, Px, P, Ad

Coefficientsa
Model Unstandardized Coefficients Standardized t Sig.
Coefficients
B Std. Error Beta
(Constant) 128832.240 69974.818 1.841 .078
P -19875.954 4100.856 -.409 -4.847 .000
1 Px 15467.936 3459.280 .375 4.471 .000
Ad .261 .094 .237 2.772 .010
I 8.780 1.017 .740 8.631 .000
a. Dependent Variable: Q

5) Can the regression coefficients help provide a better understanding of pricing and
promotional plans for the coming year? Explain.
The regression coefficients can be utilized in providing a better understanding of pricing
and promotional plans for the coming year. Based from the economic meaning of the price, if
price will increase by $1, there will be a decrease in their demand by 19875.954. this can help
them to make better decisions because they know that increasing the prices of the meals will
have a big impact to the demand of numbers meals served.

For the promotional plans of their product, as seen on the economic meaning an increase
in advertising by $1, will increase the demand by 0.261. This shows that if they put more budget
in their advertising, it will increase the demand for their product or increase the number of
meals served. Although, the management may decide if they will increase the budget or just
maintain their current budget for it has only a small amount of increase. This might be the
situation, if they maintain the budget, it may not at all affect or it may lessen the demand of
their product by a small amount. But if they increase the advertising budget by $1, it may still
have a small impact which is an increase to the demand of the number of meals served.