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Submitted By hhonchar

Words 1263

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Words 1263

Pages 6

Heather Honcharik

Professor: Diana Bonina

ECO550: Managerial Economics and Globalization

April 27, 2014

QD = - 5200 - 42P + 20PX + 5.2I + .20A + .25M (2.002) (17.5) (6.2) (2.5) (0.09) (0.21)

Qd= -5200 – 42(500) + 20(600) + 5.2(5,500) + .20(10,000) + .25(5,000)

Qd= -5,200 – 21,000 + 12,000 + 28,600 + 2,000 + 1,250 = 17,650

Price of the product elasticity= -42(500/17,650)= -1.19. The price of the microwaveable food product is elastic, meaning that the price of the product will affect the demand. As the price of the product increases, the demand for the frozen microwaveable food will decrease as well as if the price of the microwaveable food decreases, the demand for them will increase.

Cross elasticity= 20(600/17,650) = .68. The cross elasticity, or the price of the leading competitive product, is positive, implying that they are substitute products. However, the elasticity is less than 1, which suggests that they are not necessarily good substitutes and the competitor’s price has little impact to the product sales.

Per capita Income elasticity= 5.2(5,500/17,650) = 1.62. The product is income elastic. This would indicate that the product is a luxury product and will be responsive to income fluctuations.

Advertising elasticity= .20(10,000/17,650) = .11. The product is inelastic with respect to advertising. An increase in advertising will have a very small effect on product sales. For instance, if we increased advertising by 10%, we would only see approximately a 1.2% increase in product sales.

=-5200-42*(500) +20*(600) +5.2*(5500) +0.2*(11000) +0.25*(5000) = 17850

Number of Microwaves sold elasticity= .25(5,000/17,650) = .07. The product is inelastic in regards to the number of microwaves sold. The product sales will be relatively the same regardless if the number of...

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