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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 find the elasticities for each independent variable.
2. Determine the implications for each of the computed elasticity’s for the business in terms of short-term and long-term pricing strategies. Provide a rationale in which you cite your results. The elasticity of the demand is 1.9, which indicates that it has an elastic demand. The price elasticity of demand is very sensitive to the

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