Analyzing the Demand Estimation

Demand Estimation QD = -2,000-100P + 15A + 25Px + 10y R2 = 0.85 QD = 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 Area (SMSA) where the 26 supermarkets are located) A (in dollars) = $640 (monthly advertising expenditures) Compute the elasticities for each independent variable In definition, elasticity is a component employed to define the relation between two variables.

More so, the definition is outlined as the change in percentage in a dependent variable instigated by a change in percentage in an independent variable (Mudida, 2003). Elasticity = % change in dependent variable / % change in independent variable With these estimates, it is possible to compute Q: Q= -2,000-100 (2) + 15 (640) + 25 (3) + 10 (5,000) Q = 57,475 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 The own price elasticity is -0.003479.

This implies that a 1% increase in the price of the frozen microwavable food product will cause the quantity demanded to decline by 0.0035%. Therefore, this means that the frozen microwavable food is price elastic. As a result, an increase in income may push or sway the consumers away. Secondly, the cross-price elasticity of the frozen microwavable food is 0.167. This implies that a 1% increase in the price of the food product from the competitors or rivals will cause the quantity demanded to increase by 0.17%.

Therefore, this means that the frozen microwavable food product is fairly price inelastic to the price of the competing products. Therefore, this implies that there is no great requirement for concern or worry with regard to the rival companies, taking into account that their pricing strategies will not have any disparaging impact on the sales (Keat et al., 2013). Thirdly, the income elasticity 0.001305. The inference is that in the case of a 1% increase, the average income will induce an increase in the quantity demanded by 0.0013%.

In this regard, the product is elastic and this means that the business can opt to make the decision of raising the price in the event that the income of the consumers rises as well. Lastly, with respect to advertisement, the elasticity is 0.87. The inference of this is that a 1% increase in the expenses incurred for advertising will have a positive influence by increasing the quantity demanded by 0.87%. For that reason, demand is somewhat inelastic to advertising.

In view of that, more advertisement does not, by design, imply that the company can increase the price since that still could steer away the consumers (Keat et al., 2013). 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 Taking into consideration that the price elasticity of the frozen microwavable food in the month of April is greater than one in absolute value, this decline in the price will bring about or result in an even bigger increase in the quantity of the frozen microwavable food demanded. In turn, this brings about an increase in the market shares of the company.

As a result, cutting or decreasing the price of the frozen microwavable food will result in an increase in the market share of the company. This is owing to a bigger price elasticity of demand (Arnold, 2008). 4. 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 Having all the other factors remaining constant, the demand equation is as follows: Q = -2,000-100 (P) + 15 (640) + 25 (3) + 10 (5,000) Q = 57,675-100P At 100 cents, Q = 57, 675-10000= 47,675 At 200 cents, Q = 57, 675-20000= 37,675 At 300 cents, Q = 57, 675-30000= 27,675 At 400 cents, Q = 57, 675-40000= 17,675 At 500 cents, Q = 57, 675-50000= 7,675 At 600 cents, Q = 57, 675-60000= -2,325 Plot the corresponding supply curve on the same graph using the following supply function (with the same prices 100, 200, 300, 400, 500, and 600 cents): QS = -7909.89 + 79.0989P At 100 cents = -7909.89 + 79.0989 (100) = 0 At 200 cents = -7909.89 + 79.0989 (200) = 7909.89 At 300 cents = -7909.89 + 79.0989 (300) = 15819.78 At 400 cents = -7909.89 + 79.0989 (400) = 23729.67 At 500 cents = -7909.89 + 79.0989 (500) = 31639.56 At 600 cents = -7909.89 + 79.0989 (600) =39549.45 Determine.