Compute elasticity of trades with respect to demand function

Assignment Help Business Economics

Reference no: EM1343904

Q. The research department of the Corn Flakes Company (CFC) estimated the subsequent regression for the demand of the cornflakes it sells:

QX = 1.0 - 2.0PX + 1.5I + 0.8PY - 3.0Pm + 1.0A

Qx = trades of the CFC cornflakes, in millions of 10-ounce box
PX = the price of CFC cornflakes, in dollars per 10-ounce box
I = personal disposable income in thousands of dollars
PY = the price of competitive brand of cornflakes, in dollars per 10 ounce box
Pm = price of milk in dollars per quart
A = advertising expenditures of CFC cornflakes, in hundreds of thousands of
dollars per yr

This yr PX = $2, I = $4, PY = $2.50, Pm = $1 also A = $2

a. Find trades of CFC cornflakes this yr.

b. Compute the elasticity of trades with respect to every inconsistent in the demand function

c. Based on your answer to (b), illustrate what should CFC's pricing approach be if it needs to increase trades revenue? Justify.

d. Estimate the level of trades next yr if CFC reduces PX by 10 percent (%), increases advertising by 20 percent (%), I rises by 5 percent (%), PY is reduced by 10 percent (%) also Pm remains unchanged.

Reference no: EM1343904

Questions Cloud

Which inconsistents of model are statistically significant : Trades are seasonal, with higher trades during the spring also summer quarters also lower trades during fall also winter quarters. Which inconsistents of the model are statistically significant.

Calculate total rate of return on the bond : Consider a bond paying a coupon rate of 10 percent per year semiannually when the market interest rate is only 4 percent per half year. The bond has three year until maturity.

Nci-parent bonds from unaffiliated parties : At the beginning of the year, an 80 percent owned subsidiary acquired a parent's bonds from unaffiliated parties at a gain of $20,000.

Reasons for acquisitions in technology-telecommunications : Why do you think there have been so many acquisitions in the technology sector, the telecommunications sector and the regional banking sector?

Compute elasticity of trades with respect to demand function : Compute the elasticity of trades with respect to every inconsistent in the demand function.

Relationship in future value factor and present value factor : What is the relationship between the future value factor for five years at 5 percent and the present value factor for five years at 5 percent?

Information about merger evaluation : Calculate the firm's current cost of equity. Estimate the firm's cost of equity after it increases its leverage to 75% of equity.

Define aggressive financing strategy : What is an aggressive financing strategy? What are components of aggressive finance strategies?

Illustrate what is the size of the bank actual reserves : The ABC Bank of Bermuda has outstanding checkable deposits of $300,000 also a reserve ratio of 10%. If it has excess reserves of $15,000, illustrate what is the size of the bank's actual reserves.

User Account

All Pages