2. The maker of a 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 + 20P + 5.21 +0.20A +0.25M. Assume p=0.11 P=0.0069 p=0.052 p=0.0642 p=0.3425 p=0.2567 the following values for the independent variables: Q =quantity sold per month, P =price of the product (in cents) = 500, P=price of the leading competitor's product (in cents) = = 600, I =per capital income of the standard metropolitan statistical area (SMSA) in which the supermarket is located (in USD) = 5500, A =Monthly advertising expenditure (in USD) = 10000, M =number of microwaves sold in the SMSA in which the supermarket is located 5000 a. Compute elasticities for each variable b. Do you think the firm should cut its price to increase its market share? Explain. c. In writing up a report about the estimated demand, which variables would be most mportant and why? (hint - which estimates are significantly different from zero.)
2. The maker of a 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 + 20P + 5.21 +0.20A +0.25M. Assume p=0.11 P=0.0069 p=0.052 p=0.0642 p=0.3425 p=0.2567 the following values for the independent variables: Q =quantity sold per month, P =price of the product (in cents) = 500, P=price of the leading competitor's product (in cents) = = 600, I =per capital income of the standard metropolitan statistical area (SMSA) in which the supermarket is located (in USD) = 5500, A =Monthly advertising expenditure (in USD) = 10000, M =number of microwaves sold in the SMSA in which the supermarket is located 5000 a. Compute elasticities for each variable b. Do you think the firm should cut its price to increase its market share? Explain. c. In writing up a report about the estimated demand, which variables would be most mportant and why? (hint - which estimates are significantly different from zero.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:p=0.11 P=0.0069
2. The maker of a 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 + 20P + 5.2I +0.20A + 0.25M. Assume
p=0.052 p=0.0642 p=0.3425 p=0.2567
the following values for the independent variables: Q =quantity sold per month, P =price
500, P=price of the leading competitor's product (in cents)
600, Iper capital income of the standard metropolitan statistical area (SMSA) in
which the supermarket is located (in USD) = 5500, A =Monthly advertising expenditure
(in USD) = 10000, M =number of microwaves sold in the SMSA in which the supermarket
is located = 5000
of the product (in cents)
a.
b.
=
=
Compute elasticities for each variable
Do you think the firm should cut its price to increase its market share? Explain.
C. In writing up a report about the estimated demand, which variables would be most
important and why? (hint - which estimates are significantly different from zero.)
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