Demand Estimation essay

Anonymous
timer Asked: Apr 20th, 2014

Question description

Week 3 Assignment 1 Submission_Rub.docx

8525799.xlsx

I need someone to edit my ECO paper. I will attach the rubric and my paper. The paper is wrote in entirely. Still need a conclusion. I need someone to fix my mistakes and help make it sound a lot better. I still need 3 more references. The rubric is attached.

Introduction

In this paper I will compute the elasticities for each independent that was given to me. I will determine the implications for each of the computed elasticities. Elasticity, as it is used in economics, refers to the response of a "dependent" variable to changes in the "independent" variable (n.a., 2014). I will recommend whether the firm should or should not cut its price to increase market share. I will then plot the demand curve and the supply curve. I will determine the equilibrium price and quantity. I will also outline the significant factors that could cause a change in the supply and demand. I will then indicate the crucial factors that cause the rightward shifts and leftward shifts in demand.

Elasticities

• In Computing the elasticities you will need to put calculate the following numbers:

QD= -5200-42P+20PX+5.21+.20A+.25M

We will need to convert the figure prices in to the dollars. After doing that we will put the values into the equation and we will get the following below:

QD=-5200-(42x5) + (20x6) + (5.2x5500) + (0.20X1000) + (0.25X5000) = 26560

• Next I will calculate the own price elasticity

=-4.2, P=5, Q=26560

-42 X 5/26560=-0.008 (rounded number)

• Next I will calculate the cross elasticity

20, PX=6, Q=26560

20 X 6/26560=0.005 (rounded number)

• Next I will calculate the Income elasticity

5.2, I = 5500, Q=26560

=5.2 x 5500/26560 = 1.08 (rounded number)

• Next I will calculate Advertisement elasticity

0.2, A = 10000, Q=26560

=0.2 x 1000/26560 =0.08 (rounded number)

• Next I will calculate the oven elasticity

0.25, M = 5000, Q=26560

=0.25 x 5000/26560 =0.05 (rounded number)

Implications

After reviewing the results that I provided above you will notice several different things. First you will notice that the own price elasticity is rounded to -0.008. That shows that the demand for the microwavable low –calorie foods is sensitive to the change. With that being said is the increase in the food price will lead to the quantity falling causing the demand to be less than the required amount.  I found that the income elasticity that was calculated was rounded off to 1.08. That implies that the goods are a necessity.

After reviewing the cross price the number came to 0.005. That implies that the numbers can be a neutral item.  While looking at the advertisement elasticity I found that to come out to 0.08. This shows that the advertisement plays a big part in the sale of the items. Finally I looked at the microwave elasticity. The number came to 0.05. This implies that oven sales increased and the demand for the microwavable foods also increased.

Recommendation

I found that if the price falls the total revenue will too since the price elasticity that was calculated is less than 1. With the cross price elasticity of the foods being so close to zero, I don’t see the company making their prices any lower to increase its market share.

Demand Curve

Supply Curve

Equilibrium Price and Quantity

After computing the numbers we will have for the equilibrium, market demand will equal the market supply.

P=248

Q =16357

Influential Factors

There are several factors that can influence the demand and supply. I found that the income, advertisement, and the competitor’s price will drastically affect the demand. While the supply, the need for more advancement technology can drastically affect the supply.

Crucial Factors

When you find that individual’s income increase some the demand of the product will curve rightward. Then when it comes to the individual income decreasing some the curve will shift leftward. When the advertisement increases in price then will the shift in demand curve rightward and leftward. With the improvement of technology the supply curve will shift rightward.

References

n.a. (2014, April 23). Retrieved from Itech: http://itech.fgcu.edu/faculty/bhobbs/elasticity.html

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