Introduction. 1.Compute The Elasticity For Each Independent

1251 WordsApr 22, 20176 Pages
Introduction 1. Compute the elasticity for each independent variable. Note: Write down all of your calculations. Solutions: Given that P=500, M=5000, A=10,000, I=5,500, C=600, Replacing P, M, A, I and C in the equation QD = - 5200 - 42P + 20PX + 5.2I + 0.20A + 0.25M we obtain the below regression equation; QD= - 5200 – 42(500) + 20(600) + 5.2(5500) + 0.20(10000) + 0.25(5000) = 17,650 Basic our argument on elasticity we acknowledge that: Price Elasticity (Ep) = (P/Q) (∆Q/∆P) From the derivative of the (Ep) regression we obtain, ∆Q/∆P = -42. Therefore, Price Elasticity (Ep) = (P/Q) (-42) (500/17650) = -1.19, similarly Microwave Elasticity (EM) = (P/Q) (0.25) (5000/17650) = 0.07 Income-elasticity (EI) = (P/Q) (5.2) (5500/17650) = 1.62…show more content…
This relationship interprets that, given an upward in proportionate in the income of the consumer, the demand of the quantity demand of the product will consequently increase (1.62) percent. There is an indication from the market that if the company notices the consumer demand is higher due to increased income, the price of the product will tend to be increased. Microwave Oven Elasticity: The simulations from the calculations shows that microwave elasticity in this particular region is 0.07. Though there is minor effect in the price and demand, a percentage increase in the supply of microwave cause a resultant rise of the quantity demanded (0.07 percent). Directly proportionately implicated shows the quantity demand of the Microwave is inelastic. Advertisement Elasticity: From the above calculation we have obtained the advertisement elasticity is 0.11, the implication showing positive influence that if there is a percentage increase in advertisement expenses incurred by business by 1 %, consequently, the quantity demand for the advertisement need will definitely rise (0.11 percent). This indicates that the demand has an inflexible relationship to the company’s need to market their product. The relationship has an adverse effect on the customers because an increase in company’s advertisement expenses will rise the value of the product which would later chase consumers due to high prices. Recommend whether you believe that this firm should or

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