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Brand of low calorie microwaveable food

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Reference no: EM131665836

The maker of a leading brand of low calorie microwaveable food estimated the following demand equation for its product using data from 26 supermarkets around the country for the month of April.

Q = ?5 200 ? 42P + 20P x +5.2Y + 0.20A + 0.25M

Assume the following information for the independent variables:

  • Q = quantity sold per month.
  • P (in cents) = Price of product = 500
  • Px (in cents) = Price of leading competitor's product = 600
  • Y (in rands) = Per capita income of the standard metropolitan area (SMSA) in which the supermarket is located = 5 500
  • A (in rands) = Monthly advertising expenditure = 10 000.
  • M = number of microwave ovens sold in the SMSA in which the supermarket is located = 5 000.

Required:

1. Calculate the point elasticity for price (P), price of leading competitor (Px) and income (Y).

2. Do you think the company should be concerned about the impact of a recession on its sales? Explain.

3. Do you think the firm should cut its price to increase its market share? Provide reasons for your answer.

Reference no: EM131665836

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