Big City Java is a local coffee bar. Using Excel, the manager of Big City Java estimates the weekly demand function for their grand mocha coffees to be Q^d = 650 - (15.25 × P). The estimated regression equation suggests which of the following is true? A)The price of grand mocha coffees represents the dependent variable in the regression equation. B)If a price of $5 is charged, the predicted weekly demand of grand mocha coffees is 453.75. C)There is a positive relationship between the price of grand mocha coffees and the quantity demanded. D)As the price of grand mocha coffees increases, the quantity demanded decreases.

Question

Quizplus · Accepted Answer

The negative coefficient of the price variable (-15.25) implies that there is an inverse relationship between price and quantity demanded. As price increases, the quantity demanded decreases. Option A is incorrect because the demand for grand mocha coffees is the dependent variable in the regression equation. Option B is incorrect as the weekly demand at $5 price can be calculated as Q^d = 650 - (15.25 × 5) = 567.5, not 453.75. Option C is also incorrect as the negative coefficient on the price variable indicates a negative/ inverse relationship between the price of grand mocha coffees and the quantity demanded.

Big City Java Is a Local Coffee Bar