Topic: Demand Estimation

Order Description

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 at

https://www.sophia.org/tutorials/independentand-
dependent-variables–3.

Demand equation and data necessary for you to complete this assignment.

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
P (in cents) = Price of the product = 500
PX (in cents) = Price of leading competitor’s product = 600
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

1. Recommend whether you believe that this firm should or should not cut its price to increase its
market share. Provide support for your recommendation.
2. 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.
3. 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.
7. No references past 2010.

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