## Eco 550 Week 3 Assignment 1 Demand Estimation Equation

DEMAND ESTIMATIONTimes have changed when it comes to the way families eat their meals on a daily basis. Most families are always on the run. Whether it they are parents who are working long hours, kids are involved in multiple sports or after school academic activities, or just not being able to settle down for a regular family meal, it’s just not enough time in the day to cook. Everything in life has become very fast. It’s easier and sometimes cheaper to just grab something to eat on the run at a fast food restaurant than it is to go shopping and prepare a meal. It is also easier to just throw something in the microwave for 1.5 minutes and have to do nothing else to it but eat. These have become very popular and affordable meal choices as well. In this assignment, I will compute the elasticities for each independent variable, plot the demand and supply curves, and identify crucial factors that would case shifts in the demand and supply curve for this low calorie, frozen microwavable food. Computation of Elasticities for Each Independent Variable QD =-2000 – 100P + 15A + 25PX + 10I(5234)(2.29)(525)(1.75)(1.5)R2 = 0.85n = 120F = 35.25Q =Quantity demanded of 3-pack unitsP (in cents) =Price of the product = 200 cents per 3-pack unitPX (in cents) =Price of leading competitor’s product = 300 cents per 3-pack unitI (in dollars)=Per capita income of the standard metropolitan statistical area (SMSA) in which the supermarkets are located = $5000A (in dollars)=Monthly advertising expenditures = $640Solution:QD =-2000 – 100P + 15A + 25PX + 10I

Angelia WaltonApril 24, 2016ECON 550Week 3 – Assignment #1Imagine that you work for the maker of a leading brand of low-calorie, frozen microwavable food that estimates the following demand equation for their product using data from 26 supermarkets around the country for the month of April.Note: The following is a regression equation. Standard errors are in parenthesis for the demand of 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= 4.88Your supervisor has asked you to compute the elasticity for each independent variable. Assume the following values for the independent variables: Q D = Quantity demandedP (in cents) per case = Price of the product = 500 centsPX (in cents) = Price of leading competitor’s product = 600 centsI (in dollars) = Per capita income of the standard metropolitan statistical area (SMSA) where the supermarkets are located = 5500A (in dollars) = Monthly advertising expenditures = $10,0001. Compute the elasticity for each independent variable. Note: Write down all of your calculations.When P= 500, C=600, I=5,500, A=10,000, and M=5000, using the regression equation,QD= - 5200 – 42(500) + 20(600) + 5.2(5500) + 0.20(10000) + 0.25(5000) = 17,650Price Elasticity = (P/Q) (∆Q/∆P)from the regression equation, ∆Q/∆P = -42.So, Price Elasticity (Ep) = (P/Q) (-42) (500/17650) = -1.19, Likewise,Ec = 20(600/17560) = 0.68EA= (P/Q) (0.20) (10000/17650) = 0.11

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