Essay Managerial Economic Globalization

1025 Words Jan 31st, 2016 5 Pages
Crystal Wilder
Emmanuel Chebe
ECO :Managerial Economics and Globalization
January 23, 2016

I am working 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. My supervisor has asked me to compute the elasticities for each independent variable.
QD = -2,000 - 100P + 15A + 25PX + 10I
(5,234) (2.29) (525) (1.75) (1.5)
R2 = 0.85 n = 120 F = 35.25
Compute the elasticities for each independent variables.
Price 1, Quantity 1
QD = QUANTITY DEMANDED
P1= Price of product (200 cents)
PX = Price of competitor’s product (300 cents)
I = per
…show more content…
Recommend whether you believe that this firm should or should not cut its price to increase its market share. Provide support for your recommendation.
I think that the firm should cut its price to increase market share since the elasticity is so inelastic. To respond to a price decrease, the customers must learn about the discount and then incur the cost of adjusting their own schedules to complete a purchase during the sales period. The demand response to price changes is diminished the shorter the time period of adjustment. Selling at a lower price often increase sales volume, making up for decreased profit per unit by returning bigger gross profits.
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. Plot the demand curve for the firm.
Plot the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.1P with the same prices.

(note: the demand curve is in blue and the supply curve is in orange)
Determine the equilibrium price and quantity.
QD = -2,000 - 100P + 15A + 25PX + 10I
(5,234) (2.29) (525) (1.75) (1.5)
R2 = 0.85 n = 120 F = 35.25
-2000-100P+15A+25X+10I
-2000-100P+(15*640)+(25*300)+(10*5000)
Qd = -2000-100P+9600+7500+50000
Qd = 65,100-100P
65100-100P =

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