1.Compute all elasticities for each independent variable.
Option 1
Quantity Demanded
= (-5200) - 42 (500)+20 (600)+ 5.2(5,500)+ .20(10,000)+ .25(5,000)
=(-5200) -21000+12000+28600+2000+1250 is 17650
=17650
Cross Price Elasticity
=20 Px is 600, QD is 17650
=20 600/17650
=0.6
Income Elasticity
5.2, I is 5500, QD is 17650
=5.2(5500/17650)
=1.62
Advertisement Elasticity …show more content…
The product is income elastic.
This would express that the product itself is a product that is luxury and will be forthcoming to income variations. Advertising elasticity= .20 10,000/17,650 is.11. The product is inelastic with reverence to advertising. A boost in advertising will have a little pursuance on sale products.
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. To be able maximize the market share I believe that the company needs to cut its prices. Noticing the price elasticity will give you intuition on whether a firm should or should not increase or decrease there cost.
Also noticing the price elasticity would also display the firm on whether or not it would have an effect on a product. In regards to price elasticity of the microwavable food, the price elasticity of 1.19 and also the difference in the price will have an effect on demand for the product. If the price lessens then there would be gain in the demand. 4.
A. The following equation is needed to plot the demand curve for the firm.
QD is -5200-42P+20 (600)+5.2 (5500)+0.2 (10000)+.25 (5000)