Reference no: EM1366511
Shoes For Less (SFL) hires you to determine the demand for their shoes, and you estimate this to be:
Qd = 32,000 - 1200P + 600Pc + 1.2Y + 0.06A
Where the independent variables are respectively: price of SFL's shoes, price of competitors' shoes, per capita income (in $) and advertising (in $) by SFL. You observe that competitors have, on average, priced their shoes at $40, while SFL charges $35. Per capita income level in the store's geographic market averages $25,000. SLF's advertising expenditure is $550,000 per month.
i) Explain clearly to your client what each of the coefficients means.
ii) Should SFL expand to wealthier areas?
iii) What should SFL do to maximize revenue?
iv) Should SFL increase its advertising expenditure?
v) A prior consultant had originally estimated the demand for SFL's shoes, and obtained:
Qd = 50,000 - 500P + 100Pc + 0.1Y
Explain the difference in the results between your results and those of the original consultant.
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