· 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
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
Imagine that you work for the maker of a leading brand of low-calorie microwavable food that estimates
the following demand equation for its product using data from 26 supermarkets around the country for the
month of April.
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 longterm 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.
4a. 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. Plot the demand curve for the firm.
4b. 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. Plot the corresponding supply curve on the same graph using the supply function Q = 5200 + 45P with the same prices.
4c. 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. Determine the
equilibrium price and quantity.
4d. 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. 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. 3 references
7. Appropriate use of APA in-text citations and reference section
8. Information Literacy / Integration of Sources
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