Demand and Supply Estimation
Assignment 1: Demand and Supply Estimation
Varney Momo Bafalie
Dr. Emmanuel Obi
Managerial Economics and Globalization
April 26, 2014
Managerial Economics: Applications, Strategies and Tactics, Mcguigan/Moyer/Harris 13th Edition, 2014
Imagine 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) …show more content…
Provide support for your recommendation.
Since the price elasticity is greater than one in absolute value, a decrease in price will lead to an even greater increase in quantity demanded (in % terms), leading to an increase in market shares. Yes, cutting the price will lead to an increase in the company share as the PED is bigger than (1.19).
4. Assume that all the factors affecting demand in this model remain the same, but that the price has changed. Further assume that the price changes are 100, 200, 300, 400, 500, 600 cents.
i) Plot the demand curve for the firm. ii) Plot the corresponding supply curve on the same graph using the supply function Q = 5200 + 45P (Q= -7909.89+79.0989P) with the same prices. iii) Determine the equilibrium price and quantity iv) Outline the significant factors that could cause changes in supply and demand for the product. Determine the primary manner in which both the short-term and the long-term changes in market conditions could impact the demand for, and the supply, of the product.
Solutions: With all others factors remaining constants, the demand equation is as follows: Q = -5200 - 42(P) + 20(600) +5.2(5500) +0.2(10,000) +0.25(5000) Q = 38,650 – 42P P = 38,650/42-Q/42 Q = 5200 =45P P = - 5200/45 + Q/45 Thus, solving the demand and supply curves concurrently, 38,650 - 42P = 5200 +