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Demand Estimation

Demand Estimation
Strayer University
Eco 550
Professor: Muhammed
April 25, 2015

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Demand Estimation

Compute the elasticitys for each independent variable. Note: Write down all of your
calculations.
Foods. Demand Equation for microwave foods in the stated twenty six
supermarkets: 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 elasticitys for each independent
variable. Assume the following values for the independent variables:
Q
=

Quantity
demanded of 3pack units
P=
Price of
the
product =
500 cents
per 3-pack
units
PX=
Price of
leading
competitor
s product
= 600
cents per
3-pack
unit
I(in
Per capita
dollars)=
income of
the
standard
metropolit
an
statistical
area
(SMSA=
in which
the
supermark
ets are
located =
$5,500
A(in
Monthly
dollars)
advertisin
g
expenditur
es
=10,000

Number of microwave ovens sold in the

SMSA in which the supermarkets are
located = 5,000

Price elasticity Formula: E= (P/Q)(Dq/Dp)

Regression equation and values: of P = 500, C = 600, I =
5500, A = 10000 and M = 5000; Quantity

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Demand Estimation

demanded is QD = -5200 42(500) + 20(600) + 5.2(5500) + 0.2(10000) +

0.25(5000) = 17,650
(Dq/Dp) = -42 the widget price (regression equation).
So, EP = (500/17650) (-42) = -1.19
Ec = (600 / 17650) 20 = 0.68
Ei = (5500 / 17650) 5.2 = 1.62
EA = (10000 / 17650) 0.20 = 0.11
EM = (5000 / 17650) 0.25 = 0.07
Determine the implications for each of the computed elasticitys for the business in
terms of short-term
and long-term pricing strategies. Provide a rationale in which you cite your results.
The calculation for price elasticity is solved as -1.19, this demonstrates that
there is a 1% rise in the cost of the widget, and a strong possibility that the will
decrease. The elasticity in price is considered to be elastic. Overall this will lower
the quality demand. The higher it becomes the less consumers will purchase.

Recommend whether you believe that this firm should or should not cut its price to
increase its market share. Provide support for your recommendation.

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Demand Estimation

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.

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Demand Estimation

Determine the equilibrium price and quantity.

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Demand Estimation

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.

References