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##### In 1999 refuse collection fee was 2$/lb

**Description**

solution

**Question**

In 1999 refuse collection fee was 2$/lb in a town and on average a person was producing 5 lbs of waste. Then, in 2000 local government decides to decrease the fee to 1$/lb and as a result waste production increases to 8 lbs.;a)Plot these two points in a graph in which you have quantity of waste produced (q) on the horizontal;axis and price (fee) of waste collection (p) on the vertical axis.;b)Assume that the demand curve is linear, that is demand curve can be written q= a0 + a1 p. Calculate a0 and a1: Draw your estimated demand curve in the graph you drew in a.;c) Finally, in 2001 the fee was increased to 1.5$/lb which decreased waste production to 6 lbs. In a graph similar to you draw in a., this time plot all three data points. Can the demand curve you;estimated fit all the three points perfectly?;d)Assume that the relationship between refuse production (q) and refuse collection fee (p) is of the form q = b0 + b1 p +? where? denotes error term. Estimate b0 and b1 by ordinary least squares (OLS) method. Draw your new estimated demand curve in the graph you drew in c.;e)Which of the demand curve estimations, the one you did in part b or the one you did in part d, better;explain three data points. Why?

Paper#29643 | Written in 18-Jul-2015

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