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Demand Estimation Essay

947 words - 4 pages

Compute the elasticities for each independent variable. Note: Write down all of your calculations.
P= 500, M= 5000, A= 10,000, I = 5,500, C=600
QD= - 5200 – 42(500) + 20(600) + 5.2(5500) + 0.20(10000) + 0.25(5000) = 17,650
Price Elasticity (Ep) = (P/Q) (∆Q/∆P)
∆Q/∆P = -42.
Price Elasticity (Ep) = (P/Q) (-42) (500/17650) = -1.19
Ec = 20(600/17560) = 0.68
EA= (P/Q) (0.20) (10000/17650) = 0.11
EI = (P/Q) (5.2) (5500/17650) = 1.62
EM = (P/Q) (0.25) (5000/17650) = 0.07
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.
Price Elasticity ...view middle of the document...

Provide support for your recommendation
I recommend the firm cut the price, decreasing the price would raise the quantity of demand and would lead to an increase in the company share.

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 (see below graph)
-5200 -12600 12000 28600 2000 1250 26050

-5200 -16800 12000 28600 2000 1250 21850

-5200 -21000 12000 28600 2000 1250 17650

-5200 -25200 12000 28600 2000 1250 13450

(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

7909.89 2600 12000 28600 2000 1250 23340.11

7909.89 16800 12000 28600 2000 1250 19140.11

7909.89 21000 12000 28600 2000 1250 14940.11

7909.89 25200 12000 28600 2000 1250 10740.11
(c) Determine the equilibrium price and quantity
The demand and supply calculation 38650-42P = -7209.89+79.0989P
38650+7209.89 = (79.0989+42) P
121.0989P= 45859.89
P = 378.6978
Q= 22744.6924
(d) Outline the significant factors that could cause changes in supply and demand for the low-calorie, frozen microwavable food. 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
Factors affecting demand:
Price of the commodity
Income of the consumers
Consumer’s taste and preferences
Consumer awareness
Political stability
Price of other related commodities
Speculation of future price changes

Factors affecting supply:
Own price of the commodity
Price of other related commodities
Prices of production factors
Goals of the producing firm
Technology state of the firm

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