The following linear demand specification is estimated for Conlan Enterprises,a price-setting firm: $Q = a + b P + c M + d P _ { R }$ where Q is the quantity demanded of the product Conlan Enterprises sells,P is the price of that product,M is income,and $P _ { R }$ is the price of a related product.The results of the estimation are presented below: Given the above,based upon the parameter estimates in the above table
A)this good is a normal good.
B)the related good is a substitute.
C)the related good is a complement.
D)a and b
E)a and c

Question

The following linear demand specification is estimated for Conlan Enterprises,a price-setting firm: $Q = a + b P + c M + d P _ { R }$ where Q is the quantity demanded of the product Conlan Enterprises sells,P is the price of that product,M is income,and $P _ { R }$ is the price of a related product.The results of the estimation are presented below:  Given the above,based upon the parameter estimates in the above table
A)this good is a normal good. 
B)the related good is a substitute. 
C)the related good is a complement. 
D)a and b 
E)a and c

Quizplus · Accepted Answer

Since the coefficient of income (M) is positive (0.5), the good is a normal good. Since the coefficient of the price of a related good (PR) is negative (-0.2), the related good is a complement. Therefore, the answer is E, a and c.

The Following Linear Demand Specification Is Estimated for Conlan Enterprises,a Q=a+bP+cM+dPRQ = a + b P + c M + d P _ { R }Q=a+bP+cM+dPR​

The Following Linear Demand Specification Is Estimated for Conlan Enterprises,a $Q = a + b P + c M + d P _ { R }$