Premium Essay

Eco Demand Estimation

In: Business and Management

Submitted By jroxlee
Words 2653
Pages 11
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. 1. Compute the elasticities for each independent variable.
Option 1
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
QD = -5200 – 42(P) + 20 (PX) + 5.2 (I) + 0.20 (A) + 0.25 (M) =-5200 – 42*500 + 20*600 + 5.2*5500 + 0.20*10,000 + 0.25*5,000 = -5200-21000+12000+28,600+2000+1250 = 17650
Price Elasticity: -42*500/26,560 = -1.19
Cross Elasticity: 20*600/26,560 = 0.68
Income Elasticity: 5.2*5500/26,560 = 1.0768 = 1.62
Advertisement Elasticity: 0.2*10,000/26,560 = 0.11
Microwave Oven Elasticity: 0.25*5,000/26,560 = 0.07

Elasticity refers to the degree of changes in a demand or supply curve when prices changes. The elasticity shows the optimum price for the product to maximize a profit. If the price is set too high, it will turn customers away, causing less sales volume which will lead to less profit or even lead to loss. If the price is set too low, it may attract more customers, but total revenue could be low. Elasticity computation helps to determine the...

Similar Documents

Premium Essay

Eco 550 Demand Estimation

...Demand Estimation Stacy D. Lucero Strayer University April 28, 2015 Abstract By using data from the month of April from 26 supermarkets around the country that sells our low-calorie, frozen microwavable dinners we are going to discover which independent variables have the greatest effect on the demand of our products. We are also going to graph a demand and supply curve in order to more accurately forecast our demand. Demand Estimation As an analyst for the leading brand of low-calorie, frozen microwavable dinners my boss has asked me to produce a demand estimation using existing data. We are trying to forecast how to price our products to increase our sales by taking independent variables and estimating how elastic they are in relation to our products. We are also going to determine our demand and supply curve to further our knowledge for more accurate forecasting. Elasticity for Independent Variables We wanted to see how elastic the demand for our product is by using data from 26 supermarkets around the country for the month of April. When referring to the elasticity of demand we are trying to determine if prices changes to our product will help us to sell more of our dinners. To do this we used a regression equation. We then computed the elasticity’s of several independent variables that would have an impact on our sales. The independent variables that we used were the price of the competitor’s product, the per capita income of the area nearest the......

Words: 1332 - Pages: 6

Premium Essay

Marketing

...qwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwer...

Words: 2153 - Pages: 9

Premium Essay

Eco Assignment – Melon Enterprise

...ECO Assignment – Melon Enterprise Click Link Below To Buy: http://hwaid.com/shop/eco-assignment-melon-enterprise/ Question 1 The Total Cost for 20 years is 100x + 20x =120x The demand curve therefore is r=70-0.001s Total Revenue within 20 years is 20rs – 1200s -0.02s2 Profit =(1200s-0.02s2)-120s = 1080s – 0.02s2 The maximum amount of profit is ds = 0 1080-0.04s = 0 s=1080*0.04=27,000 sq.m Case 2: Demand Curve is r= 60-0.002s The Total revenue for 20 years is 1000s – 0.002s2 Profit = (2000s – 0.04s2)-140s – 88s – 0.04s2 The optimal size of the shopping center is based on the revenue obtained and the utility obtained The number of attendants is monopoly of course representing the interests of the fans and the participants and the center is smaller than the number of fans in the competitive free-entry market equilibrium. Question 2 The maximum amount that Melon will be willing to pay is the price of the Native State essentially, this is the economic profit that can compensate Melon. Question 3 Total Profit = Total Revenue – Total Cost TR = 60 – 0.001s =TR-TC Quantity = 10,000 Price = $30 each Total Cost = $240,000 Total Revenue = $300,000 Total Profit = $60,000 Question 4 Hiring Roland in doing some additional market research obviously would provide a better estimate for the retail space because of the extensive experience in cost estimations and cost analysis. Question 5 The best option would be for Melon to lease the shopping center this......

Words: 333 - Pages: 2

Premium Essay

Demand Estimation

...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. ------------------------------------------------- Q = Quantity demanded of a unit (dependent......

Words: 1413 - Pages: 6

Premium Essay

Eco 550 Entire Course Managerial Economics and Globalization

...ECO 550 Entire Course Managerial Economics and Globalization Follow Below Link to Download Tutorial https://homeworklance.com/downloads/eco-550-entire-course-managerial-economics-globalization/ For More Information Visit Our Website ( https://homeworklance.com/ ) Email us At: Support@homeworklance.com or lancehomework@gmail.com ECO 550 DQ 1: Managerial Economic Decision Making From the e-Activity, assess how business leaders use managerial economics to make business decisions indicating how profits may be impacted. Analyze the principal-agent problem to determine how the relationship could be less adversarial. ECO 550 DQ 2: Fundamental Economic Concepts Pick a recently released good or service. Then, determine the factors that must be evaluated regarding the product’s supply and demand. Analyze how these factors impact the decision to supply the product indicating the significance of each in the decision-making process. ECO 550 DQ 3 From the e-Activity, explain the most important information you would require on which to base sound economic judgments. Explain your rationale. Assess the various forms of organizing and processing information to determine which is the most difficult to get correct. Explain your rationale ECO 550 DQ 4 Analyze the characteristics that make any transaction possible and justify the importance of each of the characteristics.Evaluate the role institutions play in transactions and discuss the likely economic......

Words: 1790 - Pages: 8

Premium Essay

Estimation Demand

...Demand Estimation ECO 550 August 10, 2014 Dr. Lundondo Mumeka Demand Estimation In this essay I will assume the role as an employee for the maker of a leading brand of low-calorie, frozen microwavable food chain. Using the data from 26 supermarkets around the country for the month of April and the equation data that has been provided to me, I will compute the elasticity for each independent variable as well as determine the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Based on these calculations I will recommend whether the firm should or should not cut its price to increase its market share. Lastly, with the understanding of the concept on supply and demand I will discuss crucial factors that could cause rightward shifts and leftward shifts of the demand and supply curves, illustrating these shifts using graphs plotting the curves. Compute the Elasticity for Each Independent Variable Assume the following values for each independent variable. These values will be used to compute the elasticity for each independent variable for the food chain. The first step in computing these equations will be to convert all price values into dollars, then put the values of P, Px, A, I and M in the above equation. QD = - 5200 - 42P + 20PX + 5.2I + .20A + .25M • Q = Quantity demanded of 3-pack units • P (in cents) = Price of the product = 500 cents per 3-pack unit • PX......

Words: 946 - Pages: 4

Free Essay

Technical Report on Achieving Water Neutrality in the Severn Trent Region

...Report on achieving water neutrality in the Severn Trent region Abstract The concept of water neutrality is a rather new but significant concept for water demand management. It is an ambitious concept which targets to make sure that there is enough water to support any development without requiring additional water resources. There are two main reasons because of which the water neutrality becomes an important concept which include the policy of government which aims at a quicker growth in housing keeping a target of over 3 million new houses by 2020. The plan to achieve this growth depends upon existing water management plans and the growth point and eco-towns. The other key factor is the availability of water resources either today or in future which can be used to meet the demand for water in the areas of England and Wales. Most of East midlands area is served by Severn Trent water which is targeting to put a check on the carbon footprint by bringing in water neutrality and improving energy efficiency. Introduction The concept of water neutrality is a vital concept for the purpose of water resource management keeping new development in mind. It can be defined as offset of water demand in the existing community by the means of making the buildings and houses increasingly water efficient. In other words, total water demand should remain same with the new housing development in the region. Most of the studies performed on the subject of water neutrality have been based......

Words: 3253 - Pages: 14

Premium Essay

Eco 550-

...Assignment 1 Demand Estimation COURSE: ECO 550 – Managerial Economics and Globalization 
 Assignment 1: Demand Estimation I work for a leading brand of low-calorie frozen microwavable dinners, called Nukims. My supervisor has asked me to compute the elasticity of each independent variable, in a demand model for our product, which uses data from 26 supermarkets around the country in the month of April. The following is the regression equation, with the standard errors in the parentheses for the demand of the dinners: The following are the independent variables assumed: * 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 My supervisor wants me to find the elasticity of demand for each independent value, but first we must find out the value of Q, by inserting the values in the demand regression equation as follows: The elastisities are calculated as follows: To determine the implications of each of these independent variable’s elasticity, you must first understand what elasticity in economics...

Words: 1167 - Pages: 5

Premium Essay

Assignment 1

...Assignment 1: Demand Estimation Becky Boom ECO 550 Demand Estimation for Low Calorie Frozen - Microwavable Food Using data from 26 supermarkets around the country for the month of April, the following regression equation was generated. Please note, standard errors are in parentheses for the demand for widgets. QD = -5200 - 42P + 20PX +5.2I +.20A +.25M (2.002) (17.5) (6.2) (2.5) (0.09) (0.21) R2 = 0.55 n = 26 F = 4.88 Computed elasticities for each independent variable has been requested assuming 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 1. Attached is the excel spreadsheet where you will......

Words: 1241 - Pages: 5

Premium Essay

Sustainability Mangement

...| Sustainability management | | | | | * Executive Summary Sustainability is a key concern for the business now-a-days. Firms are now triggering resources and practices towards the sustainable growth of the business. Shell Group, a leading firm in energy industry, is trying to turn their resources for being sustainable in their business practices. For being so, they can follow two approaches such as Carroll’s four part model of CSR and stakeholder analysis. It has become a vital concern for the firms like shell to conduct CSR activities as they have to operate in an environment where they have to be economically viable as well as conforming to the legal laws, rights and obligations of the society. Not only the corporate social responsibility but also the stakeholder’s satisfaction can influence a great deal in the firm’s success. So, the stakeholder’s theory means a lot to the firms. Stakeholders can be internal as well as external. For applying those approaches, shell has to consider several analysis like cost benefit, life cycle analysis, environmental impact analysis, stakeholder matrix , segmentation analysis and so on. Finally, the company will get findings of taking one approaches as per the analysis to implement for being sustainable. * Contents Executive Summary 1 1 Introduction 3 2 For effective management of sustainability, these two approaches can be considered by the Shell Group as prescribed. The approaches are 4 2.1 Carroll’s...

Words: 4511 - Pages: 19

Premium Essay

Marketing Report Paper

...by Doug and Paul when marketing the Eco- Shack. The report will then explain the related marketing concepts and provide several suggestions to overcome the problems. The main problem that can be extracted from the case study is incorrect marketing strategy which leads to several sub problems. These problems include incorrect brand positioning, segmenting and targeting. In addition, the price of an Urban Eco- Shack is higher than its competitors and lastly, Doug and Paul did not highlight the unique features of their product. After analysing, we had identified that for the consumer market, the green consumers segment will be interested in Eco- Shack. The four primary bases in this segment are geography, demographics, psychographics and behavioural (QuickMBA 2010). Meanwhile, for the business market, two segments that could be interested in Eco- Shack are businesses that are looking for an office site and those who are concern of the environment. There are many segmentation bases in business market which includes company size, industry, operating practices, culture and geographic. This report will further analyse on cost based pricing, a type of pricing strategy currently used by Eco- Shack developer. This strategy is commonly used by smaller firms because it is easy to be implemented and allows firms to estimate their profit margin more accurately. However, this strategy does not respond to market change, thus we can say that the price of Eco- Shack is less competitive......

Words: 2842 - Pages: 12

Premium Essay

Eco 550 Week 3 Assignment 1

...Demand Estimation | [Type the document subtitle] | | Professor: Dr. Camille Castorina | | ECO 550: Managerial Economics and Globalization | 7/21/2014 | | In this assignment we will look at a certain scenario that involves estimating the demand of a product when certain variables are put into place. So first thing is understanding what is demand and how does it apply in Economics. “The law of demand states that when the price of a good rises, the amount demanded falls, and when the price falls, the amount demanded rises. Economists have considered this thoroughly and have developed a measure of the degree of cutback, which they call the “elasticity of demand.” The elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.” “The greater the absolute value of this ratio, the greater is the elasticity of demand. When there is a close substitute for one firm’s brand, for example, a small percentage increase in that firm’s price may lead to a large percentage cut in the amount of the firm’s good demanded. In such a case, economists say that the demand for the good is highly elastic. On the other hand, when there are few good substitutes for a firm’s product, the firm might be able to raise its price substantially with only a small decrease in the quantity demanded resulting. In such a case, demand is said to be highly inelastic” (Henderson,. D 2008). Now let’s look at converting all price values into......

Words: 876 - Pages: 4

Premium Essay

Eco 550 Complete Class

...ECO 550 Complete Class Click Link Below To Buy: http://hwcampus.com/shop/eco-550/eco-550-complete-class/ Or Visit www.hwcampus.com ECO 550 Complete Class ECO 550 Week 3 Assignment 1 – Demand Estimation Imagine that you work for the maker of a leading brand of low-calorie 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 http://www.sophia.org/tutorials/independentand- dependent-variables–3. Note: Your professor will provide you with the equation and data necessary for you to complete this assignment. You will find this information attached to Assignment 1 within the course shell. 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 shortterm 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.......

Words: 3181 - Pages: 13

Premium Essay

Eco 550 Complete Class

...ECO 550 Complete Class Click Link Below To Buy: http://hwcampus.com/shop/eco-550/eco-550-complete-class/ Or Visit www.hwcampus.com ECO 550 Complete Class ECO 550 Week 3 Assignment 1 – Demand Estimation Imagine that you work for the maker of a leading brand of low-calorie 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 http://www.sophia.org/tutorials/independentand- dependent-variables–3. Note: Your professor will provide you with the equation and data necessary for you to complete this assignment. You will find this information attached to Assignment 1 within the course shell. 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 shortterm 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.......

Words: 3181 - Pages: 13

Premium Essay

Eco 550 Complete Class

...ECO 550 Complete Class Click Link Below To Buy: http://hwcampus.com/shop/eco-550/eco-550-complete-class/ Or Visit www.hwcampus.com ECO 550 Complete Class ECO 550 Week 3 Assignment 1 – Demand Estimation Imagine that you work for the maker of a leading brand of low-calorie 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 http://www.sophia.org/tutorials/independentand- dependent-variables–3. Note: Your professor will provide you with the equation and data necessary for you to complete this assignment. You will find this information attached to Assignment 1 within the course shell. 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 shortterm 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.......

Words: 3181 - Pages: 13