Wal-Mart managers are evaluating a new product to make available for their stores. The data represent the estimated quantity and price of that product compared to two competitive products and per capita income over the last twenty some years. Using what you have learned from your experiences, answer the following questions. (Please note the data provided for this analysis is only applicable to this section of the exam.)
Part 1 (40%)
Only a conceptual outline is expected in each question of Part 1.
Please give your assessment as to whether the information provided represents a reasonable data set that could be used to estimate the market demand for this product. How would you describe the type of competitive market that Walmart faces given the descriptions outlined in the case? (20%)
Note that managers have determined they should run both a linear and log-linear dataset for the analysis. Describe the considerations that you think the managers used in making this type of decision. (20%)
Part 2 (60%)
Run the two datasets through an appropriate regression analysis and post your results of both the linear and log-linear output table that you generate. Respond to the following questions and finalise your results with a narrative of your recommendations. Use the Excel® spreadsheet provided below to complete the analysis requested.
Are there significant differences between the linear and log-linear results in terms of the statistical significance of the individual parameters as well as the equation as a whole? Which set of data, the linear or log-linear, appears to give the best results? (Address these issues specifically in this part of the MEQA question.) (25%)
The managers were told that the average variable cost (AVC) for producing this product was AVC = 140.5 Ã¢â‚¬â€œ 3.74Q + 0.29Q2. Estimate the most profitable price and output that Wal-Mart should use in proceeding with this product. (25%)
Are there any other recommendations regarding pricing adjustments and output levels that you would reasonably recommend from this analysis. What additional information would you like to have to make a decision to include this product in the Wal-Mart inventory? (10%)