Exercise 4.5

General Cereals is using a regression model to estimate the demand for Tweetie Sweeties, a whistle-shaped, sugar-coated breakfast cereal for children. The following (multiplicative exponential) demand function is being used:

QD=6,280 P(1.35)A2.05N2.70QD=6,280 P1.35A2.05N2.70

where

QDQD = quantity demanded, in 10-oz boxes

PP = price per box, in dollars

AA = advertising expenditures on daytime television, in dollars

NN = proportion of the population under 12 years old, in percent

What is the point price elasticity of demand for Tweetie Sweeties?

2.05

2.70

-0.66

-1.35

What is the advertising elasticity of demand?

2.05

0.76

-1.35

2.70

According to the estimated model, a percent increase in the proportion of the population under 12 years old the quantity demanded by percent.