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Assignment 1: Demand Estimation
Due Week 3 and worth 200 points
Due Week 3 and worth 200 points
Imagine that you work for the maker of a leading brand of
low-calorie, frozen microwavable food that estimates the following demand
equation for its product using data from 26 supermarkets around the country for
the month of April.
For a refresher on independent and dependent variables, please go
to Sophia’s Website and review the Independent and Dependent Variables tutorial,
located athttp://www.sophia.org/tutorials/independent-and-dependent-variables--3.
Option 1
Note: The following is a regression equation. Standard errors are in parentheses for the demand for widgets.
QD = - 5200 - 42P + 20PX + 5.2I + .20A + .25M
(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)
R2 = 0.55 n = 26 F = 4.88
Note: The following is a regression equation. Standard errors are in parentheses for the demand for widgets.
QD = - 5200 - 42P + 20PX + 5.2I + .20A + .25M
(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)
R2 = 0.55 n = 26 F = 4.88
Your supervisor has asked you to compute the elasticities for each
independent variable. Assume the following values for the independent
variables:
Q
= Quantity demanded of
3-pack units
P (in cents) = Price of the product = 500 cents per 3-pack unit
PX (in cents) = Price of leading competitor’s product = 600 cents per 3-pack unit
I (in dollars) = Per capita income of the standard metropolitan statistical area
(SMSA) in which the supermarkets are located = $5,500
A (in dollars) = Monthly advertising expenditures = $10,000
M = Number of microwave ovens sold in the SMSA in which the
supermarkets are located = 5,000
P (in cents) = Price of the product = 500 cents per 3-pack unit
PX (in cents) = Price of leading competitor’s product = 600 cents per 3-pack unit
I (in dollars) = Per capita income of the standard metropolitan statistical area
(SMSA) in which the supermarkets are located = $5,500
A (in dollars) = Monthly advertising expenditures = $10,000
M = Number of microwave ovens sold in the SMSA in which the
supermarkets are located = 5,000
Option 2
Note: The following is a regression equation. Standard errors are in parentheses for the demand for widgets.
Note: The following is a regression equation. Standard errors are in parentheses for the demand for widgets.
QD
= -2,000 - 100P + 15A +
25PX + 10I
(5,234) (2.29) (525) (1.75) (1.5)
R2 = 0.85 n = 120 F = 35.25
(5,234) (2.29) (525) (1.75) (1.5)
R2 = 0.85 n = 120 F = 35.25
Your supervisor has asked you to compute the elasticities for each
independent variable. Assume the following values for the independent
variables:
Q
= Quantity demanded of
3-pack units
P (in cents) = Price of the product = 200 cents per 3-pack unit
PX (in cents) = Price of leading competitor’s product = 300 cents per 3-pack unit
I (in dollars) = Per capita income of the standard metropolitan statistical area
(SMSA) in which the supermarkets are located = $5,000
A (in dollars) = Monthly advertising expenditures = $640
P (in cents) = Price of the product = 200 cents per 3-pack unit
PX (in cents) = Price of leading competitor’s product = 300 cents per 3-pack unit
I (in dollars) = Per capita income of the standard metropolitan statistical area
(SMSA) in which the supermarkets are located = $5,000
A (in dollars) = Monthly advertising expenditures = $640
Write a four to six (4-6) page paper in which you:
1.
Compute the elasticities for
each independent variable. Note: Write down all of your
calculations.
2.
Determine the implications for
each of the computed elasticities for the business in terms of short-term and
long-term pricing strategies. Provide a rationale in which you cite your
results.
3.
Recommend whether you believe
that this firm should or should not cut its price to increase its market share.
Provide support for your recommendation.
4.
Assume that all the factors
affecting demand in this model remain the same, but that the price has changed.
Further assume that the price changes are 100, 200, 300, 400, 500, 600 dollars.
a.
Plot the demand curve for the
firm.
b.
Plot the corresponding supply
curve on the same graph using the following MC / supply function Q = -7909.89 +
79.0989P with the same prices.
c.
Determine the equilibrium price
and quantity.
d.
Outline the significant factors
that could cause changes in supply and demand for the product. Determine the
primary manner in which both the short-term and the long-term changes in market
conditions could impact the demand for, and the supply, of the product.
5.
Indicate the crucial factors
that could cause rightward shifts and leftward shifts of the demand and supply
curves.
6.
Use at least three (3) quality
academic resources in this assignment. Note: Wikipedia does
not qualify as an academic resource.
Your assignment must follow these formatting requirements:
·
Be typed, double spaced, using
Times New Roman font (size 12), with one-inch margins on all sides; citations
and references must follow APA or school-specific format. Check with your
professor for any additional instructions.
·
Include a cover page containing
the title of the assignment, the student’s name, the professor’s name, the
course title, and the date. The cover page and the reference page are not
included in the required assignment page length.
The specific course learning outcomes associated with this
assignment are:
·
Analyze how production and cost
functions in the short run and long run affect the strategy of individual
firms.
·
Apply the concepts of supply
and demand to determine the impact of changes in market conditions in the short
run and long run, and the economic impact on a company’s operations.
·
Use technology and information
resources to research issues in managerial economics and globalization.
·
Write clearly and concisely
about managerial economics and globalization using proper writing mechanics.
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