# Managerial Economic Notes

Pages: 5 (809 words) Published: April 14, 2013
PBL 3

GSM 5000 MANAGERIAL ECONOMICS

You have been appointed as a member of a consultation team who is working on this very important assignment for a soft drink company. The main task is to evaluate factors affecting the soft drink consumption. Therefore, you should revise the knowledge of demand analysis and carry out an investigation on the possible determinants of the demand for the product. The consultant should also describe the methodology of a multiple linear regression and its purpose in estimating a demand function.

The consultant should then run a multiple linear regression in linear and multiplicative forms based on the data provided by the company and report on the estimated result. They will have to evaluate the estimated demand equations both in linear and multiplicative forms, select the one, which can best describe the consumption. The consultant will also have to obtain the estimated values of the various demand elasticities from the estimated coefficients of the regression and explain the meaning of each elasticity. From the demand equation, the consultant should recommend how to improve the soft drink consumption.

The following table provides data on soft drink consumption in can per capita as it relates to prices, income per capita, and mean temperature across regions.

a. Estimate the demand for soft drinks using a multiple linear regression in both linear and multiplicative forms. b. Provide an economic interpretation for each of the estimated coefficients. c. Calculate the price and income elasticity and interpret them. d. Using economics and statistical criteria, determine the ‘best’ demand specification. e. Based on your answer in part (d), estimate a new demand equation by omitting price from the regression equation. Observe the bias introduced into the parameter estimate for income. f. Based on the answer in part (d) should the marketing plan for soft drinks be designed that relocates most canned drink machines into low-income neighbourhood? Why or Why not?

|Region |Annual Cans Per Capita |Price Per Six-Pack |Income Per Capita |Mean Temp. | |1 |200 |2.19 |13 |66 | |2 |150 |1.99 |17 |62 | |3 |121 |2.29 |19 |52 | |4 |118 |2.49 |27 |50 | |5 |217 |1.99 |28 |52 | |6 |242 |2.29 |18 |72 | |7 |295 |1.89 |14 |64 | |8 |85 |2.39 |16 |46 | |9 |114 |2.35 |24 |52 | |10 |184 |2.19 |20 |52 | |11 |104 |2.21 |16 |50 | |12 |143 |2.17 |17 |56 | |13 |230 |2.05 |13 |56 | |14 |269 |1.97 |15 |69...