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 competi

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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: (remaining parts)

  1. Do you think that this firm should cut its price to increase its market share/revenue? Explain.
  2. What proportion of the variation in sales is explained by the independent variables in the equations?
  3. Interpret your results for each variable.
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