Answer:
Parameter estimates
The coefficient for Px (-5) suggests that there is an inverse relationship between the price of the fruit drink and the quantity demanded. In other words, as the price of the drink increases, the quantity demanded decreases.
The coefficient for M (0.001) suggests that there is a positive relationship between the median annual family income and the quantity demanded. In other words, as the median income increases, the quantity demanded also increases.
The coefficient for Py (10) suggests that there is a positive relationship between the price of the competing brand of fruit drink and the quantity demanded for this brand. In other words, as the price of the competing brand increases, the quantity demanded for this brand also increases.
Explanation:
To calculate the monthly consumption of the fruit drink, we plug in the given values into the demand equation,
Qx = 10 - 5(2) + 0.001(20,000) + 10(2.5)
Qx = 10 - 10 + 20 + 25
Qx = 45 liters per family per month.
Therefore, the monthly consumption of the fruit drink per family is 45 liters.
If the median annual family income increased to $30,000, then the new monthly consumption of the fruit drink per family can be calculated as follows,
Qx = 10 - 5(2) + 0.001(30,000) + 10(2.5)
Qx = 10 - 10 + 30 + 25
Qx = 55 liters per family per month.
Therefore, the monthly consumption of the fruit drink per family would increase from 45 liters to 55 liters per family per month.
To determine the demand function, we need to solve for Qx in terms of the other variables,
Qx = 10 - 5Px + 0.001M + 10Py
Qx - 10Py = 10 - 5Px + 0.001M
Qx = (10 - 5Px + 0.001M) / 10Py
Therefore, the demand function is:
Qx = (10 - 5Px + 0.001M) / 10Py
To find the inverse demand function, we need to solve for Px in terms of Qx.
Qx = 10 - 5Px + 0.001M + 10Py
5Px = 10 - Qx - 0.001M - 10Py
Px = (10 - Qx - 0.001M - 10Py) / 5
Therefore, the inverse demand function is,
Px = (10 - Qx - 0.001M - 10Py) / 5