Essay on Demand

1485 Words Jul 22nd, 2015 6 Pages
Demand Estimation

Trevor Shipp

23 July 2015

Managerial Economics

Dr. Juliet U Elu

Introduction Today we will be examining our tactics in how we have become the leading brand in providing low-calorie, microwavable frozen foods. We have collected data from approximately 26 supermarkets across the country for the month of April. The firm will attempt to pinpoint an estimate of our consumer demand to aid us in making our next move. First, we will compute the elasticities of all independent variables in our demand regression equation: QD= -5200-42P+20Px+5.2I+0.2A+0.25M. Those independent variables include quantity demanded, price of our product, price of the competitor’s product, income, advertising expenditures, and microwave
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In order to do so, we must find the change in each variable and divide them each by the quantity demanded which is 17,650. For our product price, we would calculate our change in price which is 21,000 and divide it by our quantity. Our price elasticity is -1.1898. We determine our income elasticity through the same method. The firm calculated change in income and it is 28050. After computing the formula for elasticity, we find that income elasticity is equal to 1.6203. Our competitor’s price elasticity is equal to 0.6798 after calculating their change in price which was 12000. Change in advertising expenses is equal to 2000 and our advertising elasticity is 0.1113. The product elasticity for the microwave ovens sold is 0.0708 after dividing change in microwave oven sales which is 1,250 by our quantity demanded.
Pricing Strategies for the Firm Based on the price elasticity of the low-calorie, frozen microwavable food, we can determine that the demand is elastic. A percentage change in the price of the food is exceeded by the percentage change in the quantity demanded. Due to the income elasticity being positive in our firm, we can also determine that our low-calorie, frozen microwavable food is the superior good compared to our leading competitor. The firm also provides a product that is economical to our consumers. The competitor’s price elasticity is 0.6798. It is deemed to be inelastic because it is less than 1. The cross elasticity between microwave ovens and

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