Problem number 4 –Page 240 -4th Edition , Managerial Economics -the market of leading brand of low calorie microwavable food estimated the following demand equation for its product using data from 26 supermarkets around the country for the month of April

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Problem number 4 –Page 240 -4th Edition ,

Managerial Economics

-the market of leading brand of low calorie microwavable food estimated the following demand equation for its product using data from 26 supermarkets around the country for the month of April :

Q =             - 5200 – 42P + 20 PX  +  5.2 I  +  0.2 A  + 0.25 M

 

                             (2.002)

 

(17.5)

 

(6.2)

 

(2.5)

 

(0.09)

 

(0.21)

 

 

R2 = 0.55

N=  26

F = 4.88

 

 

·       Q = quantity sold by month

·       P= price of the product=500

·       Px=price of a leading competitor ‘s product=600

·       I =per capita income of the standard metropolitan statistical area where the supermarkets are located =5500

·       A=monthly advertizing expenditures= 10000

·       M=number of microwave ovens sold in the SMSA in which the super markets is located =5000

a-Compute the elasticity for each of the variables

 

b-How concerned do you think this company would be about the impact of a recession on its sales?

 

c-Do you think that this firm should cut its price to increase market share?

 

d-what proportion of the variation in sales is explained by the independent variables in the equation? How confident are you about this answer?

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