Q- the demand for seats on a particular airline route has been estimated as:
Q= a + b P + c Po + dI + e W + f G
Where Q = the number of seats (tickets) demanded,
P = the price the airline charges for seats
Po = the price other airline charge for seats
I = the average income of people in both cities (in thousands)
W = Weekend (Friday or Saturday night = 1, otherwise = 0)
H = Holiday (Holiday/long weekend = 1, otherwise = 0)
Suppose the regression find that, a=250, b=-0.75, c=0.5, d=2, e=50, f=200, and the standard error of the regression is SE=15.
- a-Give a brief economic interpretation of each coefficient
- b-If the price this airline is charging is $250, other airlines are charging $275, the average income of the people is $40 (thousand) and it is a weekend (but NOT a holiday weekend). What is the point estimate for the number of airline seats demanded?
- c-What is the 95% confidence interval for the demand?
- d-What would the point estimate for the number of seats demanded be in (b) if everything is the same EXCEPT it was not a weekend?
- e-Suppose the airline had 300 seats. What action would you suggest the airline take in part(b) to increase its profits? Hint: think about what the airline can control.
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