9781118041581

same for the segments. Equating MRSMRCand rearranging implies

QSQC100. Together with the fact that QSQC400, one finds

QS250 and QC150. The requisite prices are PS$1.75 per hour

and PC$1.25 per hour.

Chapter 4

1. Survey methods are relatively inexpensive but are subject to potential
   problems: sample bias, response bias, and response accuracy. Test
   marketing avoids these problems by providing data on actual consumer
   purchases under partially controlled market conditions. Test marketing
   is much more costly than survey methods and suffers from two main
   problems. First, some important factors may be difficult to identify and
   control. Second, test-market results are not a perfect guide to actual
   market experience down the road.


2. a. Both t-values (based on 60 months of data) are much greater than 2,
   implying that both coefficients are significantly different from zero.
   b. The equation says that the expected return on Pepsi’s stock roughly
   follows the expected return on the S&P 500. (The coefficient .92 is the
   stock’s “beta.”) Nonetheless, there remains a large random element in
   any individual stock’s return. Day-to-day stock prices follow random
   walks. Explaining even 28 percent (R^2  .28) of the variation in the
   stock’s monthly return is impressive.
   c. Setting RS&P1 implies RPEP .06 .92 .86 percent expected
   return over the next month.


3. a. According to the t-statistics, all explanatory variables are significant
   exceptincome.
   b. This coefficient measures the price elasticity of demand, EP.29. A
   20 percent price hike implies a 5.8 percent sales drop.
   c. With EY.09, sales hardly vary with income.


4. a. Although the time coefficient is negative (b .4), its t-value is well
   below 2, indicating that the coefficient is not statistically different
   from zero. The water table has been stable over the decade.
   b. Think of yearly rainfall as one thinks of tosses of a coin. Even though
   each coin toss is random and independent of the other tosses, it is still
   possible to have an unusually large number of heads or tails in 10
   trials by pure luck. Thus, the second expert is foolish to claim that dry
   years and wet years necessarily will cancel each other out.


5. a. Northwest does have a better overall on-time record than Delta. Its
   frequency of late flights is: 412/2,058  .20 or 20 percent. By
   comparison, Delta’s frequency is: 626/2,898  .22 or 22 percent.

6 Answers to Odd-Numbered Problems

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