# Assignment 1: Demand Estimation

**Assignment 1: Demand Estimation**

Assignment 1: Demand Estimation

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.

For a refresher on independent and dependent variables, please go to Sophia’s Website and review the Independent and Dependent Variables tutorial, located at https://www.sophia.org/tutorials/independent-and-dependent-variables–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 3-pack units

P (in cents) = Price of the product = 500 cents per 3-pack unit

PX (in cents) = Price of leading competitor’s product = 600 cents 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 = $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 3-pack units

P (in cents) = Price of the product = 200 cents per 3-pack unit

PX (in cents) = Price of leading competitor’s product = 300 cents per 3-pack 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 (4-6) 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 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 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 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.

5. Indicate the crucial factors that could cause rightward shifts and leftward shifts of the demand and supply curves for the low-calorie, frozen microwavable food.

6. Use at least three (3) 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 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 firms.

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.

Grading for this assignment will be based on answer quality, logic / organization of the paper, and language and writing skills, using the following rubric.

Points: 200

Criteria Exemplary

90-100% A

1. Compute the elasticities for each independent variable. Note: Write down all of your calculations.

Weight: 15% Thoroughly computed the elasticities for each independent variable.

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.

Weight: 15% Thoroughly determined the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Thoroughly provided 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.

Weight: 10% Thoroughly recommended whether you believe that this firm should or should not cut its price to increase its market share. Thoroughly provided support for your recommendation.

4a. 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. Plot the demand curve for the firm.

Weight: 5% Thoroughly plotted the demand curve for the firm.

4b. 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. Plot the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.1P with the same prices.

Weight: 5% Thoroughly plotted the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.1P with the same prices.

4c. 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. Determine the equilibrium price and quantity.

Weight: 5% Thoroughly determined the equilibrium price and quantity.

4d. 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. 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.

Weight: 10% Thoroughly outlined the significant factors that could cause changes in supply and demand for the low-calorie, frozen microwavable food. Thoroughly determined 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 for the low-calorie, frozen microwavable food.

Weight: 10% Thoroughly indicated the crucial factors that could cause rightward shifts and leftward shifts of the demand and supply curves for the low-calorie, frozen microwavable food.

6. 3 references

Weight: 5% Exceeds number of required references; all references high quality choices.

7. Writing Mechanics, Grammar, and Formatting

Weight: 5% Error free or almost error free grammar, spelling, punctuation, or formatting.

8. Appropriate use of APA in-text citations and reference section

Weight: 5% In-text citations and references are error free or almost error free and consistently formatted correctly in APA style.

9. Information Literacy / Integration of Sources

Weight: 5% Sources are consistently integrated using effective techniques of quoting, paraphrasing, and summarizing.

10. Clarity and Coherence of Writing

Weight: 5% Information is provided in a clear, coherent, and consistent manner with reasons and evidence that logically support ideas.

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