The firm is considering changing its price to $900. Predict the quanti

The firm is considering changing its price to $900. Predict the quantity demanded at that price, all other things equal and provide a 95% confidence interval on your estimate.

(In doing this, explain the value of t-critical you will use in developing your 95% confidence interval.)

ANSWER

At a price of $900, the point estimate of quantity demanded is 3,000. With a sample size of 120, the degree of freedom is 115. Critical t values for 100 and 125 are 1.984 and 1.979 respectively, therefore a best guess of t-critical for this model is tcritical = 1.981. Given this, the 95% CI is given by BG ± tcritical × SEE or 2,932 to 3,068.