“Stonebuilt Concrete produces a specialty cement used in construction of roads. Stonebuilt is a price-setting firm and estimates the demand for its cement by the state department of transportation using a demand function in the nonlinear form:
Q = a Pb Mc PdR
where Q = yards of cement demanded monthly, P = the price of Stonebuilt’s cement per yard, M = state tax revenues per capita, and PR = the price of asphalt per yard. The manager at Stonebuilt transforms the nonlinear relation into a linear relation for estimation. The estimation results are presented below:
R-SQUARE F-RATIO P-VALUE ON F
64 0.8093 84.872 0.0001
PARAMTR EST. STDRD ERROR T-RATIO P-VALUE
Int 8.20 4.01 2.04 0.0461
LNP -3.54 1.64 -2.16 0.0357
LNM 0.64287 0.19 3.38 0.0014
LNPR 0.7854 0.38 2.07 0.0439
If the price of asphalt (PR) decreases 15%, the estimated quantity of cement demanded will:
A) increase 11.8%.
B) decrease 11.8%.
C) increase 5.2%.
D) decrease 5.2%.
E) increase 1.18%.”
Please explain how you arrived at the answer.
