Posted: September 13th, 2017

Management Demand Estimation

Management Demand Estimation

Project description
Assignment 1: 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

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 + .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

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 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.

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