# Demand Estimation

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Demand Estimation
ECO 550
28 July 2014

Demand Estimation Demand estimation is defined as the process of developing and estimating the amount of demand for a product or service. According Kehoe (1972) demand estimation consists of determining as accurately as possible, how many units of a product will be purchased at a specific price, and further determining the change in quantity demanded if the original price IS raised or lowered (p. 29). As a president or chief executive officer of a business, it is key imperative to have an understanding of what is expected in terms of sales. Successful sales companies use demand estimation to predict future sales typically in months, quarters, or years. With this concept, a company is able to estimate how much to produce. This paper will estimate the following demand equation for a leading brand of low-calorie, frozen microwavable food using data from 26 supermarkets around the country for the month of April, compute the elasticities for each independent variable, determine the implications for each of the computed elasticities for the business in terms of short-term, recommend whether or not the firm should cut its price to increase its market share, plot the demand curve for the business, and indicate the crucial factors that could cause rightward shifts and leftward shifts of the demand and supply curves.
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Q = Quantity demanded of a unit (dependent variable)
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P (in cents) = 500 cents per unit
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PX (in cents) = 600 cents per unit price (leading competitor’s product)
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I (in dollars) = \$5,500 (per capita income)
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A (in dollars) = \$10,000...

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