Braimah operates a car washing bay in the Same Magazine Business District in Kumasi, the capital city of Ashanti Region. His fastidious nature, attention to details and ability to effectively manage employees have helped him to make his business profitable, but he believes that more information about the market would allow him to operate efficiently. He uses regression analysis to estimate the demand function for his business and gets the following result: 6 – 235 – 3P, + 40A +1.57 – 5PM The number of car washing jobs he gets per month (Qx) depends on the price he charges per job (P), his monthly advertising expenditures (A) measured in $1,0005, the regional median income (1) measured in 1.000s, and the average price charged by local auto repairing businesses (R). Use the estimated demand function given above to answer the following questions: 2. Interpret the parameters of the demand function estimated above. b. Is car washing a normal good or an inferior good? Explain. c. Is car repairing a complement or a substitute for car washing? Explain d. Braimah is currently charging 67 per car washing job and spending €3.500 per month en advertising, the regional monthly median income is €2.500, and the average price of car repair in the Suame-Magazine business district is €25. How many car washing jobs per month can Braimah expect under these conditions? Calculate the own price elasticity of demand under the current conditions. Is it elastic of inclastie? Should Braimah increase price, lower price, or hold price constant he aims at increasing revenue? Explain Question
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