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Demand Estimation
  • From Economics, Managerial Economics
  • Due on 19 Apr, 2016 08:37:00
  • Asked On 13 Apr, 2016 12:39:34
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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 http://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 + 0.20A + 0.25M
(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

Option 2
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

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

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 cents.
    1. Plot the demand curve for the firm.
    2. Plot the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.1P with the same prices.
    3. Determine the equilibrium price and quantity.
    4. Outline the significant factors that could cause changes in supply and demand for the low-calorie, frozen microwavable food. 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 for the low-calorie, frozen microwavable food.
  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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Imagine that you work for the maker of a leading brand of low-calorie
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ECCO 550 Assignment, 100% A+
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Demand Estimation only A++
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Abstract The paper presents a demand estimation for a leading brand of low-calorie, frozen microwavable food. Data from 26 supermarkets were collected and analyzed through multiple regression analysis. Two regression equations are used as the company’s demand model to estimate demand and supply. There are five (5) independent variables in the first regression equation and four (4) independent variables in the second regression equation. This paper focus on the calculation of the elasticities of the independent variables of the two regression equations. The elasticities are relevant information that can be used for the company’s pricing strategies. Further analysis of the regression equation is done by varying the price values six (6) times, estimating the quantity of demand then plotting the demand curve and supply curve. The paper will also calculate the equilibrium price and the equilibrium quantity given the both the demand equation and supply equation. The paper will also discuss the factors affecting the shift in the demand and supply curve. Keywords: Multiple regression analysis, demand estimation, law of supply and demand. Demand Estimation In economics, demand connotes to the relationship between price and quantity, and is a critical concept affecting the buying behavior of consumers. Demand is the number of goods that consumers are willing to purchase and able to buy during a certain period and economic condition (Haddad, 2013). Demand is the potential sales concept of customer traffic which implies intent to purchase (McGuigan, Moyer, & Harris, 2014). The premise of demand is actually grounded in logic that consumers purc...
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