21 May OUTLINE THE SIGNIFICANT FACTORS THAT COULD CAUSE CHANGES IN SUPPLY AND DEMAND FOR THE PRODUCT.
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.
Note:The following is a regression
equation. Standard errors are in parentheses.
QD =
-2,000 – 100P + 15A + 25PX + 10Y
(5,234) (2.29) (525) (1.75) (1.5
R2 = 0.85 n =
26 F = 35.25
Your supervisor has asked you to compute the elasticities
for each independent variable. Assume the following values for the independent
variables:
QD
= Quantity demanded of a unit (dependent variable)
P (in
cents)
= 200 cents per unit (price per unit)
PX (in
cents)
= 300 cents per unit (price of leading competitor’s product)
Y (in
dollars)
= $5,000 (per capita income in the Standard Metropolitan Statistical
Area (SMSA) where the 26 supermarkets
are located)
A (in
dollars)
= $640 (monthly advertising expenditures)
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 prices 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 (with the same
prices 100, 200, 300, 400, 500, and 600 cents):
QS = -7909.89 + 79.0989P
Determine the equilibrium price and
quantity.
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.Must
consist of 3 sources.
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