Imagine that you work for the maker of leading brand of low-calorie, frozen food
ID: 3223532 • Letter: I
Question
Imagine that you work for the maker of leading brand of low-calorie, frozen food estimates the following demand equation for its product that using data from their 26 supermarkets around the country for the month of April. Note: The following is a regression equation. Standard errors are in parentheses. Q_D = -4,000 - 200P + 32A + 100PX + 9Y St. err: (1, 500) (55) (8.25) (45.75) (2.2) R2 = 0.90 n = 26 F = 47.25 Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables: Q_D = Quantity demanded of a unit (dependent variable) P (in cents) = 300 cents per unit (price per unit) A (in dollars) = $750 (monthly advertising expenditures) PX (in cents) = 200 cents per unit (price of leading competitor's product) Y (in dollars) = $10,000 (per capita income)Explanation / Answer
The predict Quantity demand is
QD = -4000 - 200P +32A + 100PX + 9Y
= -4000 - 200(300) +32(750) + 100(200) + 9(10000)
=70,000