The maker of a leading brand of low-calorie microwavable food estimate the following demand equation for its products using data from 26 supermarkets around the country for the month of April: Q = -5,200 - 42P + 20Px + 5.21 + 0.20A + 0.25M (2.002) (17.5) (6.2) (2.5) (0.09) (0.21) R2 = 0.55 N = 26 F = 4.88 Assume the following values for the independent variables: Q = Quantity sold per month P (in cents) Price of the product = 500 Px (in cents) Price of the leading competitor's product = 600 I (in dollars) Per capita income of the standard metropolitan statistical area (SMSA) which the supermarket is located = 5,500 A (in dollars) Monthly advertising expenditure =10,000 M = Number of microwave ovens sold in the SMSA in which the supermarket is located = 5,000
Using this information answer the following questions:
a) Compute elasticity for each variable.
(b) How concerned do you think this company would be about the impact of a recession on its sales? Explain.
(c) Do you think this firm should cut its price to increase its market share? Explain.
(d) What proportions of the variation in is sales is explained by the independent variables in the equations? How confident are you about this answer? Explain.