1. The regression equation is SB1= 1 + 2 PB1C + 3 PB2C +4 PB3C+.

The estimated regression is SB1= 22963.4 -470.845*PB1C + 92.99*PB2C+165.113*PB3C

The estimated coefficients imply that a one cent increase in the price of brand1 tuna would cause
a decrease in demand for brand 1 tuna by 470.845 units. One cent increase in the price of brand2
tuna would cause an increase in demand for brand 1 tuna by 92.99 units. One cent increase in
the price of brand3 tuna would cause an increase in demand for brand 1 tuna by 165.113 units.

2. The level of significance is 1%.

First consider the coefficient of PB1C, the null hypothesis is PB1C=0 against PB1C <0. The t
stat is -5.917. The critical value for t is t(.99, 50) = 2.326. We have |5.917| > 2.326. Hence we
reject the null of PB1C=0 against alternative of PB1C <0.
First consider the coefficient of PB2C, the null hypothesis is PB2C=0 against PB2C >0. The t
stat is 1.328. The critical value for t is t(.99, 50) = 2.326. We have |1.328| < 2.326. Hence we do
not reject the null of PB2C=0 against alternative of PB2C >0.
First consider the coefficient of PB3C, the null hypothesis is PB3C=0 against PB3C >0. The t
stat is 1.763. The critical value for t is t(.99, 50) = 2.326. We have |1.763| < 2.326. Hence we do
not reject the null of PB3C=0 against alternative of PB3C >0.
3. To test the hypothesis that the effect of price increase in brand1 on the sales of rand 1 is three
times the price decrease in brand 3 we conduct the following test
b[PB1C] + 3*b[PB3C] = 0. We find the test statistic: F(1, 48) = 0.0070358, with p-value =
0.933501, which implies that null is not rejected (p> 0.05) at 5% level of significance.
4. Now consider the relative price of brand 1 with respect to brand 2 and brand 3 as regressors.
We expect that with increased relative prices, the demand for brand 1 tuna would go down.
We find that the estimates regression equation becomes,

SB1= 33856.3--7474.24*RP1-19809.4*RP2, so the both the estimated coefficients are negative

and significant and hence meet my expectations.

5. The estimated coefficients with log-log model are now given as:
lnSB1= 8.35679-1.31775*lnRP2-2.7001*lnRP2. Here we find that both the coefficients are
statistically significant at 5% level of significance ( p values less than 0.05 for both the
coefficients)
6. Brand 2 is stronger competitor than Brand 3. In the log-log model the estimated coefficient of
RP2 = -1.32 whereas the estimated coefficient for RP3 =2.7 which implies that with an equal
increase in the price of brand 2 and brand 3, the quantity of rand 1 will go down more for rand 2
compared to brand 2.
7. In the log-log model (double log), the estimated coefficients are itself measures of elasticities.
So the relative price elasticity in Q5 are 1.31775 and 2.7001.
Mean of SB1= 6718.7, Mean of RP2 =0.98950 and mean of RP3=0.99659
From the regression equation we have SB1= 33856.3--7474.24*RP1-19809.4*RP2. Hence,
In Q4 the elasticity for Brand 2 = (7474.24* 0.9895)/6718.7=1.100773
In Q4 the elasticity for Brand 3 = (19809.4* 0.99659)/6718.7=2.938344.

8. For the model in Q5, the overall significance, test statistics F(2, 49)= 25.04646 with
P- value(F)=3.21e-08 which indicates that the model is able to explain the tuna sells quite
well.

9. Residual plot against ln RP2

Regression residuals (= observed - fitted l_SB1)
1.5

re s id u a l

0.5

-0.5

-1

-1.5
-0.2

0.2

0.4

0.6

l_RP2

Residual plot against lnRP3

Regression residuals (= observed - fitted l_SB1)
1.5

re s idua l

0.5

-0.5

-1

-1.5
-0.3

-0.2

-0.1

0.1
l_RP3

0.2

0.3

0.4

We do not observe that for ln RP3, with increased value of lnRP3, the residuals are also
increasing indicating presence of heteroskedasticity.
10. In the mode in Q4, we test for Heteroskedasticty and Autocorrelation:
The Breusch-Pagan test for heteroskedasticity assumes that the null of heteroskedasticity not
present. The test statistic: LM = 11.314 with p-value = P(Chi-square(2) > 11.314) = 0.0034929,
which implies that we reject the null which in-turn implies that there is presence of
heteroskedasticity.
The LM test for autocorrelation up to order 4 where the null hypothesis is no autocorrelation.
The test statistic: LMF = 0.689134 with p-value = P(F(4,45) > 0.689134) = 0.603293 implies
presence of autocorrelation.
In model for Q5 we conduct the test and find that, For Breusch-Pagan test for heteroskedasticity
the Test statistic: LM = 2.78245 with p-value = P(Chi-square(2) > 2.78245) = 0.24877 implies
no presence of heteroskedasticity.
The LM test for autocorrelation up to order, test statistic: LMF = 2.21631 with p-value =
P(F(4,45) > 2.21631) = 0.0822665 which implies presence of no autocorrelation. Hence, it is
evident thatone should prefer the double log model.