Analysis
Veronica Coleman
ECON503
Dr Erin Hutton
January 22, 2014
1. Compute the elasticities for each independent variable. Note: Write down all of your calculations.
Combined Effects of Elasticities
QD=[Constant+%Price]+%Competitor's Price+%Income+%Advertising+%Microwaves
QD=[-520+ -42500]+20(600)+5.2(5,500)+.20(10,000) +.25(5,000)
QD=22,330 (Base Q)
P=500 cent (Base P)
Competitor’s Price Elasticity
The price of the leading competitor’s product in 600 cent, $6.00
QY=Constant+%Price(P)+%Competitor's Price(PX)
QX-520+-42(P)+[20(600)]
QX=-520-42P+12000
QX=11480-42PD
QX=11480-42(500)
QX=11480-21000
QX=-9520
and
PX= 1148042- 142QD
PX= 273.33- 142QD
PX=273.33- 142(22330)
PX=273.33-531.67
PX=-258.34
Therefore,
EX=ΔQΔP x Base PBase Q
EX=(-9520-22330)*500-258.34-500*22330
EX=-31850*500-758.34*22330
EX= .9404
A 1% increase in the competitor’s price increases our quantity by 94%.
Income (per capital of SMSA) Elasticity
Per capital income of the standard metropolitan statistical area in which the supermarkets are located is 5,500.
QY=Constant+%Price(P)+%Income(Y)
QY-520+-42(P)+[5.25,500]
QY=-520-42P+28600
QY=28080-42PD
Q=28080-42(500)
Q=28080-21000
QY=7080
and
PY= 2808042- 142QD
P= 668.57- 142QD
P=668.57- 142(22330)
P=668.57-531.67
PY=136.9
Therefore,
EY=ΔQΔP x Base PBase Q
EY=(7080-22330)*500136.9-500*22330
EY=-15250*500-363.1*22330
EY=.9404
A 1% increase in per capital income will also increase our quantity by 94%.
Advertising Expenditures Elasticity
The monthly advertising expenditures is $10,000.
QA=Constant+%Price(P)+%Advertising(A)
QA=-520+-42(P)+[.20(10000)]
QA=-520-42P+2000
QA=1480-42P
Q=1480-42(500)
Q=1480-21000
QA=-19520
and
PA= 148042- 142QD
P= 35.24- 142(22330)
P=35.24- 531.67
PA=-496.43
Therefore,
E A=ΔQΔP x Base PBase Q
EA=(-19520-22330)*500-496.43-500*22330
EA=-41850*500-996.43*22330
EA=.9404
A 1% increase in advertising will also increase our quantity by 94%.
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