ECON 220 (C)

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Quant Tools for Bus & Econ – ECON 220-02 (11273)

Homework 3

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Section 9.1 1. The Better Baby Buggy company has just come out with a new model, the Turbo. The market

research department predicts that the demand equation for Turbos is given by

𝑞 = −2𝑝 + 320, where 𝑞 is the number of buggies it can sell in a month if the price is $𝑝 per

buggy.

a. At what price should it sell the buggies to get the largest revenue? (2 points)

b. What is the largest monthly revenue? (1 point)

Section 1.4

2. Investment in Gold The following are approximate values of the Amex Gold BUGS index (x=0

represents 2000.

Year x 0 5 10

Index y 50 200 500

a) Complete the following table (2 points)

Year (x) Index (y) xy x2

0 50

5 200

10 500

sum

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b) Obtain the associated regression line. (Round coefficients to the nearest whole

number)

(2 points)

c) Use your regression equation to project the index in 2011 (2 points)

3. A common perception is that airline profits are strongly correlated with the price of oil. The

Following are annual net incomes of Continental Airlines together with the approximate price

of oil in the period 2005-2010

Year Barrel Oil ($)

x

Continental Net

Income ($ million) (y) xy x2 y2

2005 56 -70

2006 63 370

2007 67 430

2008 92 -590

2009 54 -280

2010 71 150

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(Part a - d are 1 point each)

a. What is n = __________ b. What is ∑xy = ____________

c. What is (∑𝑥2) = __________ d. What is (∑𝑥)2 = __________

e. Obtain a regression line showing continental’s net income as a function of the price of oil

(3 points)

f. Obtain the coefficient of r (3 points)

g. What does the value of r suggest about the relationship of Continental’s net income to

the price of oil? (1 point)