 # Imagine that you work for the maker of a leading brand of low-calor...

## Question

Imagine that you work for the maker of a leading brand of low-calorie, frozen microwavable food that estimates the following demand equation for its product using data from 26 supermarkets around the country for the month of April.

The following is a regression equation. Standard errors are in parentheses for the demand for widgets.
QD          =             -2,000 - 100P + 15A + 25PX + 10I
(5,234) (2.29)   (525)   (1.75) (1.5)
R2 = 0.85             n = 120               F = 35.25
Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables:
Q                     =       Quantity demanded of 3-pack units
P (in cents)      =       Price of the product = 200 cents per 3-pack unit
PX (in cents)   =         Price of leading competitor’s product = 300 cents per 3-pack unit
I (in dollars)    =         Per capita income of the standard metropolitan statistical area
(SMSA) in which the supermarkets are located = \$5,000
A (in dollars)    =         Monthly advertising expenditures = \$640
Write a four to six (4-6) page paper in which you:
1. Compute the elasticities for each independent variable. Note: Write down all of your calculations.
2. Determine the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Provide a rationale in which you cite your results.
3. Recommend whether you believe that this firm should or should not cut its price to increase its market share. Provide support for your recommendation.
4. Assume that all the factors affecting demand in this model remain the same, but that the price has changed. Further assume that the price changes are 100, 200, 300, 400, 500, 600 cents.
a. Plot the demand curve for the firm.
b. Plot the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.1P with the same prices.
c. Determine the equilibrium price and quantity.
d. Outline the significant factors that could cause changes in supply and demand for the low-calorie, frozen microwavable food. Determine the primary manner in which both the short-term and the long-term changes in market conditions could impact the demand for, and the supply, of the product.
5. Indicate the crucial factors that could cause rightward shifts and leftward shifts of the demand and supply curves for the low-calorie, frozen microwavable food.
6. Use at least three (3) quality academic resources in this assignment.

## Solution Preview

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Introduction:
In this paper we are going to analyze the calculations of various elasticities of demand given the multiple regression equation which has the dependent variable as demand for the commodity low calorie, frozen microwavable food. There are many independent variables which influence the demand for the product and their respective regression coefficients are given in the equation. The next section will deal with the calculations of various elasticities of demand; the third section will detail about the implications of the various computed elasticities for the business both in the short term and in the long term. The fourth section will deal about the recommendations for the firm about its pricing strategies. The fifth section will discuss the determination of equilibrium price and quantity. The sixth section will discuss the significant factors that would influence the demand for and the supply of the microwavable food in the industry. The seventh section will deal about the factors that would cause the rightward and leftward shifts in the demand and supply curves of the product.
Various elasticities of demand given the regression equation:

The regression equation of the product – low calorie frozen microwavable food is given as
QD       =          -2,000 - 100P + 15A + 25PX + 10I
Here we can calculate the price elasticity of demand, advertising elasticity of demand, cross price elasticity and the income elasticity of demand (Baumol and Blinder, 2015).
Price is given as 200 cents; PX is given as 300 cents per 3-pack unit; Income...

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