Prepare/Class Demo: Exercise 3, parts a, b, c and d, p.136-7, Berndt. The data, Chow.xls, are in the shared “Data File” folder. Work through this exercise prior to the demo and be prepared to discuss your results in class. After completing Berndt part b, answer the following questions:

i) What is the AAGR of quality adjusted mainframe prices over the solid-state period?

ii) Are the signs of the attribute coefficients correct? Interpret them in a manner that a superior with no quantitative background could understand.

iii) What would be the impact of a ten percent increase in memory and a fifty percent reduction in memory access time on the market value of a mainframe computer?

iv) Would a semi-log or linear specification provide a better model?

After Berndt part d is completed, answer the following questions: v) There appears to be a rather dramatic drop in quality-adjusted prices for mainframe computers between 1959 and 1960. How much was it? What do you think caused this? vi) Re-estimate the equation, this time include the IBM dummy variable. Interpret your results. What are the marketing lessons here?

f. Prepare/Class Demo: Exercise 5 part c only (It will help you understand part c of the exercise if you read parts a) and b) first. You need not do them.) This problem is thought provoking but addresses a fundamental question: Did customers change their evaluation of product attributes over the estimation period? Additional econometric background is in “Econometric Issues_Berndt Ex # 5” in the Drive folder “Attribute Values”. Work through this problem prior to the class demo and be prepared to discuss your results in class. When you have finished part c, consider the following question: Can you design a statistical test to evaluate the hypothesis that it is only the coefficient of LMEM that is unstable? This is