Question

You work for a firm producing fitness equipment. You have been told that the demand curve for the​ firm's main​ product, a​ multi-station home​ gym, is linear. You have been provided with price and quantity data obtained from focus groups and have been asked to run a regression of revenue on price. A linear functional form can properly be used to​ estimate:_________
a. revenue with price and quantity included as explanatory variables.

b. quantity with price as the explanatory variable because the demand curve is linear.

c. revenue with quantity as the explanatory variable because revenue is not linear in price.

d. price with revenue as the explanatory variable because revenue determines price.

e. profit with price as the explanatory variable because revenue is not statistically significant.

Answer 1

Answer:

b. quantity with price as the explanatory variable because the demand curve is linear.

Explanation:

A linear demand curve can be defined as the graphical representation of the relationship between the quantity of goods or services that are being demanded by the consumers and the price of the goods or services at a specific period of time.

Generally, the x-axis of the graph is used to represent the price of the goods or services while the y-axis of the graph is used to represent the quantity of goods or services that are being demanded by the customers at a specific period of time.

In this scenario, You work for a firm producing fitness equipment and have been informed that the demand curve for the​ firm's main​ product, a​ multi-station home​ gym, is linear. Also, you have been provided with price and quantity data obtained from focus groups and have been asked to run a regression of revenue on price.

Hence, a linear functional form can properly be used to​ estimate quantity with price as the explanatory variable because the demand curve is linear.

Additionally, according to the law of demand, as the price of a particular product or service increases, there will be a decrease in the quantity that is being demanded by the consumers.