solution

The Kingston Company hires a consultant to estimate the demand function

for its product. Using regression analysis, the consultant estimates the demand

function to be log Q = 2.01 – 0.148 log P + 0.258 log Z

where Q is the quantity demanded (in tons) of Kingston’s product, P is the

price (in dollars per ton) of Kingston’s product, and Z is the price (in dollars

per ton) of a rival product. a. Calculate the price elasticity of demand for Kingston’s product.

b. Calculate the cross elasticity of demand between Kingston’s product and

the rival product. c. According to the consultant, R2 = 0.98 and the standard error of

estimate is 0.001. If the number of observations is 94, comment on the

goodness of fi t of the regression.