Regression analysis was applied between demand for a product (Y) and the price of the product (X), and the following estimated regression equation was obtained. = 120 - 10 X Based on the above estimated regression equation, if price is increased by 2 units, then demand is expected to
A)increase by 120 units
B)increase by 100 units
C)increase by 20 units
D)decease by 20 units

Question

Regression analysis was applied between demand for a product (Y) and the price of the product (X), and the following estimated regression equation was obtained.  = 120 - 10 X Based on the above estimated regression equation, if price is increased by 2 units, then demand is expected to
A)increase by 120 units 
B)increase by 100 units 
C)increase by 20 units 
D)decease by 20 units

Quizplus · Accepted Answer

According to the estimated regression equation, the coefficient of X is negative (-10), which indicates an inverse relationship between price and demand. So, an increase in price by 2 units will lead to a decrease in demand. Substituting X = (old price+2) in the estimated regression equation, we get: 
Y = 120 - 10 X 
Y = 120 - 10 (old price+2) 
Y = 120 - 10old price - 20 
Y = 100 - 10old price 
Therefore, demand is expected to decrease by 20 units.

Regression Analysis Was Applied Between Demand for a Product (Y)