Demand Estimation Essay - 925 Words

Demand Estimation Dhruvang kansara Eco 550, Assignment 1 Professor: Dr, Guerman Kornilov January 27, 2014 1. Compute the elasticity for each independent variable. Note: Write down all of your calculations. According to our Textbooks and given information, When P = 8000, A = 64, PX = 9000, I = 5000, we can use regression equation, QD = 20000 - 10*8000 + 1500*64 + 5*9000 + 10*5000 = 131,000 Price elasticity = (P/Q)*(dQ/dP) From regression equation, dQ/dP = -10. So, price elasticity EP= (P/Q) * (-10) = (-10) * (8000 / 131000) = -0.61 Similarly, EA = 1500 * 64 / 131000 = 0.73 EPX = 5 * 9000 / 131000 = 0.34 EI = 10* 5000 / 131000 = 0.38 2. Determine the implications for each of the†¦show more content†¦Therefore, quantity demanded is relatively inelastic to all factors considered. So, company shouldn’t worry much about these factors. 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. A price cut would increase quantity demanded, as the price elasticity is negative. But, magnitude of elasticity is a less than unity. Revenue is maximized when the magnitude of elasticity is one. Therefore, a price-cut will increase quantity demanded but will lead to a loss of sales. So, price-cut should be made only if firm is trying to strengthen its consumer base; from profit perspective, it should instead raise the price. 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. 1. Plot the demand curve for the firm. Deriving the formula from textbook we can keep other factors constant, demand equation is Q = 20000 - 10*8000 + 1500*64 + 5*9000 + 10*5000 Q = 211000 - 10P P = 21100 - 0.1Q (plotted below) 2. Plot the corresponding supply curve on the same graph using the supply function Q = 5200 + 45P with the same prices. Q = 5200 + 45P P = -5200/45 + Q/45 3. Determine the equilibrium price and quantity. According article and explanation of formula, solving demand and supply equation simultaneously, 211000 - 10P = 5200 + 45PShow MoreRelatedAn Assignment On Demand Estimation1242 Words   |  5 PagesAssignment 1: Demand Estimation Brian McGee ECO550 Managerial Economics and Globalization Dr. Rolle Jan. 16, 2015 Compute the elasticities for each independent variable QD = -5200-(42*500)+(20*600)+(5.2*5500)+(0.2*10000)+(0.25*5000) QD = -5200 - 21000 + 12000 + 28600 + 2000 + 1250 QD = 17650 Price elasticity (EP)= EP = -1.19 (1.19) Formula: EP = -42*500/17650 Competitor price elasticity (EPX)= 0.68 Formula: EPX = 20*600/17650 Income elasticity (EI)= 1.62 Formula: EI = 5.2*5500/17650Read MoreEco Demand Estimation2642 Words   |  11 PagesImagine 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. 1. Compute the elasticities for each independent variable. Option 1 Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables: Q  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   =  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Quantity demanded of 3-packRead MoreDemand and Supply Estimation Essay1208 Words   |  5 PagesHeading: Demand and Supply Estimations Assignment 1: Demand and Supply Estimation Varney Momo Bafalie Dr. Emmanuel Obi Managerial Economics and Globalization April 26, 2014 References Managerial Economics: Applications, Strategies and Tactics, Mcguigan/Moyer/Harris 13th Edition, 2014 Imagine that you work for the maker of a leading brand of low-calorie, frozen microwavable food that estimates the following demand equation for their product using data from 26 supermarkets aroundRead MoreDemand Estimation : Computation Of Elasticities1756 Words   |  8 Pages Demand Estimation Name Institution Demand Estimation Computation of Elasticities With the following regression equation, we can compute the elasticities of demand with respect to each independent variable as follows: QD = -3,750 - 100P + 25A + 50PX + 8Y (5,234) (2.29) (525) (1.75) (1.5) R2 = 0.90 n = 26 F = 35.25 Price Elasticity of Demand (PED) Price elasticity of demand is given by the formula PED= ΔQD/ΔP.P/QD. Given a regressionRead MoreDemand Estimation, Assignment 11523 Words   |  7 Pages Demand Estimation, Assignment 1 Lavinia Daye Dr. Youngblood ECO 550 January 26, 2015 For assignment one, we were asked to compute the elasticity for each independent variable. The formula for this is: The QD = - 5200 - 42P + 20PX + 5.2I + .20A + .25M Where p = 500 cents = 5 dollars Px = 600 cents = 6 dollars I = 5,500 dollars M = 5,000 A = 10,000 Therefore Qd = {- 5200 – 42 *500 +20*600 + 5.2 *5500 + 0.2 *10,000 + 0.25 * 5,000} Qd = 17,650 units Own Price elasticityRead MoreDemand Estimation for Britannia Biscuit Industry3306 Words   |  14 PagesDemand Estimation for Britannia Biscuit Industry 1.Introduction: Our objective was to study the demand variation of Britannia Biscuits in India with respect to certain variables like, Price, Price of the substitute (Parle Biscuits), Income of Consumer and Population. To achieve this we assume all other factors like Tastes of Consumer, Advertising etc are constant. The biscuit industry is taken as a whole without differentiating between various segmented brands. To arrive at the demand function ofRead MoreDemand Estimation5612 Words   |  23 PagesTUTORIAL 1: DEMAND THEORY 1a) The demand curve for haircuts at Terry Bernard’s Hair Design is P = 15 – 0.15Q where Q is the number of cuts per week and P is the price of a haircut. Terry is considering raising her price above the current price of RM9. Terry is unwilling to raise price of the price hike will cause revenue to fall. Should Terry raise the price of haircuts above RM9? Why or why not? b) Terry is trying to decide on the number of people to employ based on the followingRead MoreDemand Estimation Has Been At The Heart Of Many Studies1143 Words   |  5 Pages Literature Review Demand estimation has been at the heart of many studies that focus on questions regarding market power, merger and acquisition, research and innovation and valuation of new brands in differentiated-products industries. Under the framework of demand estimation, Bresnahan (1987) constructs equilibrium models of oligopoly under product differentiation and studies the competition and collusion in the 1995 price war in the American automobile industry. Gasmi, Laffont and Vuong (1992)Read MoreEconomics/ Demand Estimation2473 Words   |  10 PagesAssignment Demand Estimation 04-Dec-12 Liaqat Group Submitted To: Prof. Babar Hussain What Is Demand Estimation? When running a small business, it is important to have an idea of what you should expect in the way of sales. To estimate how many sales a company will make, demand estimation is a process that is commonly used. With demand estimation, a company can gauge how much to produce and make other important decisions. Definition: Demand estimation is a processRead MoreDemand Estimation Forecasting9472 Words   |  38 PagesUNIT 6 DEMAND ESTIMATION AND FORECASTING Objectives By studying this unit, you should be able to: identify a wide range of demand estimation and forecasting methods; apply these methods and to understand the meaning of the results; understand the nature of a demand function; identify the strengths and weaknesses of the different methods; understand that demand estimation and forecasting is about minimising risk. Structure 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 Introduction Estimating Demand Using