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-Sting Ray - Case Study Example

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manufactures and sells a single product called the “Sting Ray,” which is a patent-protected automatic cleaning device forswimming pools. PoolVac’s Sting Ray faces its closest competitor, Howard Industries, also selling a competing pool cleaner. Using thelast…
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Download file to see previous pages... PoolVac also wishes to use its sales data for the last 26 quarters to estimate demand for its Sting Ray.Demand for Sting Rays is specified to be a linear function as the following:
1. Run the appropriate regression to estimate the average variable cost function (AVC) for Sting Rays. Evaluatethe statistical significance of the three estimated parameters using a significance level of 5 percent. Be sure tocomment on the algebraic signs of the three parameter estimates. (30%)
At a confidence level of 95% (5% level of significance), all the three parameters are significant, as they have a p-value of less than 0.05. Notably, a (intercept) has a p-value of 1.96*10-17, while the coefficients b and have p –values of 0.000342 and 0.01299, respectively
The model implies that average variable costs is a function of both Q and square of Q. the first parameter, intercept is 152, implying that the expected average cost at constant quantity is 152. As quantity varies, average cost will vary directly with Q2 (positive parameter) and inversely with the quantity (negative coefficient). Notably an increase in quantity does not necessarily increase average variable cost, the effect depends on which variable(either Q or Q2 ) has a greater influence.
Evaluate the statistical significance of the three estimated slope parameters using a significance level of 5percent. Discuss the appropriateness of the algebraic signs of each of the three slope parameter estimates.(20%)
h= 3.166Ph and p-value of 0.027, implies that holding price and income constant, If competitors reduce their prices by a unit, customers shift from sting ray to its substitutes hence demand reduces by 3.166 units and vice versa.
5. The manager at PoolVac, Inc. believes Howard Industries is going to price its automatic pool cleaner at $250,and average household income in the U.S. is expected to be $65,000. Using the regression results from Question 4, write the estimated demand function (with only P as ...Download file to see next pagesRead More
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