# Assignment 1: Demand Estimation

## Description

Assignment 1: Demand Estimation

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.

Note: The following is a regression equation. Standard errors are in parentheses for the demand for widgets.
QD       =          – 5200 – 42P + 20PX + 5.2I + .20A + .25M
(2.002)  (17.5) (6.2)    (2.5)   (0.09)   (0.21)
R2 = 0.55           n = 26               F = 4.88

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 = 500 cents per 3-pack unit
PX (in cents)     =          Price of leading competitors product = 600 cents per 3-pack unit
I (in dollars)       =          Per capita income of the standard metropolitan statistical area
(SMSA) in which the supermarkets are located = \$5,500
A (in dollars)     =          Monthly advertising expenditures = \$10,000
M                     =          Number of microwave ovens sold in the SMSA in which the
supermarkets are located = 5,000

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 dollars.
1. Plot the demand curve for the firm.
2. Plot the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.0989P with the same prices.
3. Determine the equilibrium price and quantity.
4. Outline the significant factors that could cause changes in supply and demand for the product. 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.
6. Use at least three (3) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.

• Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
• Include a cover page containing the title of the assignment, the students name, the professors name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

• Analyze how production and cost functions in the short run and long run affect the strategy of individual firms.
• Apply the concepts of supply and demand to determine the impact of changes in market conditions in the short run and long run, and the economic impact on a companys operations.
• Use technology and information resources to research issues in managerial economics and globalization.
• Write clearly and concisely about managerial economics and globalization using proper writing mechanics

• Points: 200

Assignment 1: Demand Estimation

Criteria

Unacceptable
Below 70% F

Fair
70-79% C

Proficient
80-89% B

Exemplary
90-100% A

1. Compute the elasticities for each independent variable.Note: Write down all of your calculations.
Weight: 15%

Did not submit or incompletely computed the elasticities for each independent variable.

Partially computed the elasticities for each independent variable.

Satisfactorily computed the elasticities for each independent variable.

Thoroughly computed the elasticities for each independent variable.

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.
Weight: 15%

Did not submit or incompletely determined the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Did not submit or incompletely provided a rationale in which you cite your results.

Partially determined the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Partially provided a rationale in which you cite your results.

Satisfactorily determined the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Satisfactorily provided a rationale in which you cite your results.

Thoroughly determined the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Thoroughly provided 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.
Weight: 10%

Did not submit or incompletely recommended whether you believe that this firm should or should not cut its price to increase its market share. Did not submit or incompletely provided support for your recommendation.

Partially recommended whether you believe that this firm should or should not cut its price to increase its market share. Partially provided support for your recommendation.

Satisfactorily recommended whether you believe that this firm should or should not cut its price to increase its market share. Satisfactorily provided support for your recommendation.

Thoroughly recommended whether you believe that this firm should or should not cut its price to increase its market share. Thoroughly provided support for your recommendation.

4a. 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 dollars. Plot the demand curve for the firm.
Weight: 5%

Did not submit or incompletely plotted the demand curve for the firm.

Partially plotted the demand curve for the firm.

Satisfactorily plotted the demand curve for the firm.

Thoroughly plotted the demand curve for the firm.

4b. 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 dollars. Plot the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.0989P with the same prices.
Weight: 5%

Did not submit or incompletely plotted the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.0989P with the same prices.

Partially plotted the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.0989P with the same prices.

Satisfactorily plotted the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.0989P with the same prices.

Thoroughly plotted the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.0989P with the same prices.

4c. 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 dollars. Determine the equilibrium price and quantity.
Weight: 5%

Did not submit or incompletely determined the equilibrium price and quantity.

Partially determined the equilibrium price and qu