Subject: Manegerial Economics & Policy 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 = -5,200 - 42P + 20PX + 5.2l + 0.20A + 0.25M (2.002) (17.5) (6.2) (2.5) (0.09) (0.21) R2 = 0.55 n = 26 F = 4.88 Assume the following values for the independent variables: Q = Quantity sold per month P (in cents) = Price of the product = 500 PX (in cents) = Price of leading competitor’s product = 600 I (in dollars) = Per capita income of the standard metropolitan statistical area (SMSA) in which the supermarket is located = 5,500 A (in dollars) = Monthly advertising expenditure = 10,000 M = Number of microwave ovens sold in the SMSA in which the supermarket is located = 5,000 Using this information, answer the following questions: Compute elasticities for each variable.
Subject: Manegerial Economics & Policy
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 = -5,200 - 42P + 20PX + 5.2l + 0.20A + 0.25M
(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)
R2 = 0.55 n = 26 F = 4.88
Assume the following values for the independent variables:
Q = Quantity sold per month
P (in cents) = Price of the product = 500
PX (in cents) = Price of leading competitor’s product = 600
I (in dollars) = Per capita income of the standard metropolitan statistical area (SMSA) in which the supermarket is located = 5,500
A (in dollars) = Monthly advertising expenditure = 10,000
M = Number of microwave ovens sold in the SMSA in which the supermarket is located = 5,000
Using this information, answer the following questions:
- Compute elasticities for each variable.
- Do you think that this firm should cut its price to increase its market share/revenue? Explain.
- What proportion of the variation in sales is explained by the independent variables in the equations?
- Interpret your results for each variable.
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