Question

I am unsure how to solve for B in the problem below.

Integrating Problem: The research department of the Corn Flakes Corporation (CFC) estimated the following regression for the demand of the cornflakes it sells:

QX = 1.0 - 2.0PX + 1.5I + 0.8PY - 3.0PM + 1.0A

where

QX = sales of CFC cornflakes, in millions of 10-ounce boxes per year

PX = the price of CFC cornflakes, in dollars per 10-ounce box

I = personal disposable income, in trillions of dollars per year

PY = price of competitive brand of cornflakes, in dollars per 10-ounce box

PM = price of milk, in dollars per quart

A = advertising expenditures of CFC cornflakes, in hundreds of thousands of dollars per year

This year, PX = $2, I = $4, PY = $2.50, PM = $1, and A = $2. (a) Calculate the sales of CFC cornflakes this year. (b) Calculate the elasticity of sales with respect to each variable in the demand function. (c) Estimate the level of sales next year if CFC reduces PX by 10 percent and increases advertising by 20 percent, I rises by 5 percent, PY is reduced by 10 percent, and PM remains unchanged. (d) By how much should CFC change its advertising if it wants its sales to be 30 percent higher than this year?

Step 1

a.

Total sales can be calculated as follows.

Step 2

Total sales are 4 million.

Step 3

b.

Elasticity can eb calculated by us...

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