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
= - 5200 - 42P +
20PX + 5.2I + .20A + .25M
(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)
R2 = 0.55 n =
F = 4.88
Your supervisor has asked you
to compute the elasticities for each independent variable. Assume the following
values for the independent variables:
= Quantity demanded of
P (in cents)
= Price of the product =
$500 per 3-pack unit
PX (in cents)
= Price of leading
competitor’s product = $600 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
= 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
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.
a) Plot the demand curve for the firm.
b) Plot the corresponding supply curve on the
same graph using the following MC / supply function Q = -7909.89 + 79.0989P
with the same prices.
c) Determine the equilibrium price and quantity.
d) 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
Your assignment must follow
these formatting requirements:
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
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.