Find the elasticities for each independent variable

Assignment Help Finance Basics
Reference no: EM131141812

Assignment: Demand Estimation

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/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 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.

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 + 79.1P 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 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 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.

Reference no: EM131141812

Questions Cloud

Examine behavior within firms in relation to financial mgmt : examine ethical behavior within firms in relation to financial management. Provide two examples of companies that have been guilty of ethics-based malfeasance related to financial management and determine why their comeuppance was deserved.
Describe the key characteristics of a whistleblower : Describe the key characteristics of a whistleblower and examine the extent to which the whistleblower would be protected under the Sarbanes-Oxley Act. Justify your response.
Decrease your motivation for unwanted goals : How can this knowledge help increase your motivation for desired goals, or conversely, decrease your motivation for unwanted goals? Comment on the techniques and strategies of your classmates
What sampling technique will be used to collect your sample : What sampling technique will be used to collect your sample? What population does your sample generalize to? What are the variables in your study? HINT: Refer back to your hypothesis or hypotheses. Provide operational definitions for each variable
Find the elasticities for each independent variable : Compute the elasticities for each independent variable. 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.
Determine the value of w in terms of the euler load : Set up the stiffness matrix and determine the value of W in terms of the Euler load at which elastic instability occurs in the symmetrical rigid frame shown in Figure S11.5 . All the members are of uniform section.
Discuss the motivational theories used at your agency : Discuss the motivational theories used at your agency with your supervisor. What are the theories? Why were they chosen? What are the benefits and challenges of applying these theories with clients and staff? Reflect on how these theories assist c..
Determine implications for each of the computed elasticities : Compute the elasticities for each independent variable. Note: Write down all of your calculations - determine the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies.
Articulate your faith and explain how your anticipated work : This unit you have two options for your journal entry. - Articulate your faith and then explain how your anticipated work relates to it.

Reviews

Write a Review

 

Finance Basics Questions & Answers

  What is the net advantage to leasing

Green Valley Farms uses straight-line depreciation, has a 32 percent tax rate, borrows money at 8 percent, and has sufficient tax loss carryovers to offset any potential taxable income the firm might have over the next five years. What is the net ..

  Calculate irr on investment

Jacob has an opportunity to invest in new retail development in his building. The initial investment is $50,000 & expected cash-flows are as follows: Year 1: $2,500 Year 2:

  Current bond price-coupon rate on the bonds

A firm has bonds on the market with 9 years to maturity, YTM of 7.1% and a current price of $915. The bonds make semiannual payments. What is the coupon rate on the bonds?

  Prepare a flexible manufacturing budget for relevant range

Prepare a flexible manufacturing budget for the relevant range value using 20,940 unit increments IN EXCEL.

  Compare and contrast the internal rate of return approach

Compare and contrast the internal rate of return approach and the net present value approach to capital rationing. Which is better? Why?

  Writing a report on fofa or future of financial advice

The question belongs to Finance and it discusses about writing a report on FoFA or Future of Financial Advice, where it is implemented and the components of it and how various industries are reacting to it.

  Statement regarding profit sharing plans

Determine the correct statement regarding profit sharing plans.

  What should be the hedge ratio?

What should be the hedge ratio?

  Why is the final amount in each mutual fund different

You invest $3,000 annually in a mutual fund that earns 10% annually, and you reinvest all the distributions. How much will you have in the account at the end of 20 years?

  Differentiate between mergers and acquisitions

Do some investigation on the Internet of three large mergers or acquisitions over the last two years. What was the rationale for each of these actions? Defend your answer with a comprehensive evaluation that demonstrates clear, insightful critical..

  According to consumer digest julyaugust 1996 the probable

according to consumer digest julyaugust 1996 the probable location of personal computers pc in the home is as

  What is global income in 2010

Suppose that they have no other income, interest expenses are unchanged, and taxes are the same percentage of pretax income as in 2009.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd