Imagine that you work for the maker of a leading brand of lowcalorie
Imagine that you work for the maker of a leading brand of lowcalorie, 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. For a refresher on independent and dependent variables, please go to Sophia’s Website and review the Independent and Dependent Variables tutorial, located at http://www.sophia.org/tutorials/independentanddependentvariables–3. Option 1 Note: The following is a regression equation. Standard errors are in parentheses for the demand for widgets. QD = – 5200 – 42P + 20PX + 5.2I + 0.20A + 0.25M (2.002) (17.5) (6.2) (2.5) (0.09) (0.21) R2 = 0.55 n = 26 F = 4.88 Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables: Q = Quantity demanded of 3pack units P (in cents) = Price of the product = 500 cents per 3pack unit PX (in cents) = Price of leading competitor’s product = 600 cents per 3pack 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 = $10,000 M = Number of microwave ovens sold in the SMSA in which the supermarkets are located = 5,000 Option 2 Note: The following is a regression equation. Standard errors are in parentheses for the demand for widgets. QD = 2,000 – 100P + 15A + 25PX + 10I (5,234) (2.29) (525) (1.75) (1.5) R2 = 0.85 n = 120 F = 35.25 Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables: Q = Quantity demanded of 3pack units P (in cents) = Price of the product = 200 cents per 3pack unit PX (in cents) = Price of leading competitor’s product = 300 cents per 3pack unit I (in dollars) = Per capita income of the standard metropolitan statistical area (SMSA) in which the supermarkets are located = $5,000 A (in dollars) = Monthly advertising expenditures = $640 Write a four to six (46) page paper in which you: 1. Compute the elasticities for each independent variable. Note: Write down all of your calculations. 2. Determine the implications for each of the computed elasticities for the business in terms of shortterm and longterm 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 cents. 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 + 79.1P 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 lowcalorie, frozen microwavable food. Determine the primary manner in which both the shortterm and the longterm 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 for the lowcalorie, frozen microwavable food. 6. Use at least three (4) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource. Your assignment must follow these formatting requirements: • Be typed, double spaced, using Times New Roman font (size 12), with oneinch margins on all sides; citations and references must follow APA or schoolspecific format. Check with your professor for any additional instructions.
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