Demand for Magnum Ice Cream is given by an equation Q = - 5,000 – 40P + 20Px + 5I + 0.2AWhere, Q = Quantity of Magnum demanded, P = Price of Magnum Ice Cream, Px = Price of Walls Ice Cream, I = Per Capita Income and A = advertisement expenditure. State and elaborate the key steps for analyzing regression results of demand. Assume P = Rs 500, Px = Rs 600, I = Rs 5,000 and A = 10,000 (Rs in thousands).Calculate elasticities for each of the variables: Price Elasticity of DemandCross Price Elasticity of DemandIncome Elasticity of DemandAdvertisement Elasticity3. How does each of the elasticities help in managerial decision making? Given these estimates should Magnum consider reducing its price to increase market share? Explain.

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Demand for Magnum Ice Cream is given by an equation Q = - 5,000 – 40P + 20Px + 5I + 0.2A

Where, Q = Quantity of Magnum demanded, P = Price of Magnum Ice Cream, Px = Price of Walls Ice Cream, I = Per Capita Income and A = advertisement expenditure.

State and elaborate the key steps for analyzing regression results of demand.
Assume P = Rs 500, Px = Rs 600, I = Rs 5,000 and A = 10,000 (Rs in thousands).

Calculate elasticities for each of the variables:

Price Elasticity of Demand
Cross Price Elasticity of Demand
Income Elasticity of Demand
Advertisement Elasticity

3. How does each of the elasticities help in managerial decision making? Given these estimates should Magnum consider reducing its price to increase market share? Explain.

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