A researcher is interested in the demand for Fordpick-up trucks. The research team estimates the following linear demand function for Ford pick- up trucks:
QDF 100,000 100*PF+2000*Pop + 50*Y+ 30*Pc-1000*PG + 3*Ad
Where QDF is the quantity demanded of Ford pick-ups per year; PF is the price of Ford pick-ups dollars ($); Pop is the population of the U.S in millions; Y is disposable income in dollars; Pc is the price of Ford's competitions pick-ups; PG is the price of fuel; Ad is advertising expenditures by Ford pick-ups in dollars/year.
a. What is the change in the number of Ford pick-up trucks purchased per year (QDF) for a unit change in each of the independent (explanatory) variables in this regression equation.
b. Given the following numerical values for each of the explanatory
variables in the equation estimate the quantity demanded of Ford pick-up trucks: P= $9,000; Pop = 200 million; Y = 200 million; Pc = $8,00; PG=80 cents; Ad = $200,000.
c. Predict the change in the quantity demanded of Ford pick-up trucks (ΔQDF) if you expect the following changes in prices next year (assume all other explanatory variables remain constant).
ΔPF $1000; ΔPC = $600; ΔPG= 0.25
d. If Ford wants their pick-up truck demand to increase by 25% by how much should advertising expenditures increase?
e. Calculate the elasticity of demand for Ford pick-up trucks given the information above.