Demand Estimation
Question Description
Assignment 1: Demand Estimation
Due Week 3 and worth 200 points
Imagine that you work for the maker of a leading brand of lowcalorie, 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/independentanddependentvariables–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 + 0.20A + 0.25M
(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 3pack units
P (in cents) = Price of the product = 500 cents per 3pack unit
PX (in cents) = Price of leading competitor’s product = 600 cents per 3pack 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 3pack units
P (in cents) = Price of the product = 200 cents per 3pack unit
PX (in cents) = Price of leading competitor’s product = 300 cents per 3pack 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 (46) page paper in which you:
 Computethe elasticities for each independent variable. Note: Write down all of your calculations.
 Determine the implications for each of the computed elasticities for the business in terms of shortterm and longterm pricing strategies. Provide a rationale in which you cite your results.
 Recommend whether you believe that this firm should or should not cut its price to increase its market share. Provide support for your recommendation.
 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 cents.
 Plot the demand curve for the firm.
 Plot the corresponding supply curve on the same graph using the following MC / supply function Q = 7909.89 + 79.1P with the same prices.
 Determine the equilibrium price and quantity.
 Outline the significant factors that could cause changes in supply and demand for the lowcalorie, frozen microwavable food. Determine the primary manner in which both the shortterm and the longterm changes in market conditions could impact the demand for, and the supply, of the product.
 Indicate the crucial factors that could cause rightward shifts and leftward shifts of the demand and supply curves for the lowcalorie, frozen microwavable food.
 Useat least three (3) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.
Option 3: THIS CALCULATION CARRIES AN EXTRA 15 POINTS.
Forecasting Problem
The following are the sales achieved by Jensen Fabrics during the last 7 years.


 116,000
 124,000
 127,000
 146,000
 155,000
 154,000
 162,000

Using the compound growth rate calculation, what would be your estimate for sales in 2000?
Your assignment must follow these formatting requirements:
 Be typed, double spaced, using Times New Roman font (size 12), with oneinch margins on all sides; citations and references must follow APA or schoolspecific 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.
The specific course learning outcomes associated with this assignment are:
 Analyze how production and cost functions in the short run and long run affect the strategy of individual firms.
 Apply the concepts of supply and demand to determine the impact of changes in market conditions in the short run and long run, and the economic impact on a company’s operations.
 Use technology and information resources to research issues in managerial economics and globalization.
 Write clearly and concisely about managerial economics and globalization using proper writing mechanics.
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