Managerial Economics Problem-Solving in a Digital World

This topic examines how demand relationships can be estimated from empirical data. The whole process of performing an empirical study is explained, starting from model specification, through the collection of data, statistical analysis and interpretation of results. The focus is on statistical analysis and the application of regression analysis using OLS. Different mathematical forms of the regression model are explained, along with the relevant transformations and interpretations. The concept of goodness of fit, and the coefficient of determination, are explained, along with their application in selecting the best model. The advantages of using multiple regression are discussed, and its implementation and interpretation. Analysis of variance (ANOVA) is explained, and how this relates to goodness of fit. The implications of empirical studies are also discussed, and the light they shed on economic theory. More advanced aspects, related to inferential statistics and hypothesis testing, are covered in an appendix, along with the assumptions involved in the classical linear regression model (CLRM) and consequences of the violation of these assumptions.