= -2,000 - 100P + 15A +
25PX + 10Y
(5,234) (2.29) (525) (1.75)
R2 = 0.85 n =
26 F = 35.25
Your supervisor has asked you to compute the elasticities for each
independent variable. Assume the following values for the independent
Quantity demanded of a unit (dependent variable)
P (in cents)
= 200 cents per unit (price per unit)
PX (in cents)
= 300 cents per unit (price of leading competitor’s product)
Y (in dollars)
= $5,000 (per capita income in the Standard Metropolitan Statistical
(SMSA) where the 26 supermarkets are located)
A (in dollars) = $640 (monthly
- Compute the elasticities for each independent variable.
Type all of your calculations.
HINT: Do NOT change the units when calculating these demand
elasticities. For example, keep cents in cents and dollars in dollars!
- 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.
- Recommend whether you believe that this firm should or
should not cut its price to increase its market share. Provide support for
- Assume that all the factors affecting demand in this
model remain the same, but that the price has changed. Further assume that
the prices 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 (with
the same prices 100, 200, 300, 400, 500, and
QS = -7909.89 + 79.0989P
equilibrium price and quantity.
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.
Indicate the crucial factors that could cause rightward shifts and leftward
shifts of the demand and supply curves.