ECO550 Week 2 Discussion 1
"Estimating Demand" Please respond to the following:
* From the scenario for Katrina’s Candies, examine the procedure Herb will use to estimate the demand model developed in the week 1 scenario . Determine the meaning, relevance, and importance for a manager interpreting the regression results.
From week 1 scenario, herb will make use of Marie in collecting relevant data and organizing it for the purpose of demand estimation. The demand model developed in week one will have quantity demanded of sugar free chocolate as the dependent variable along with five independent variables. These independent variables include prices of bottled water, coffee, sugar free chocolate, number of buyers and the median of the income of buyers. The quantity demanded equation in use by Katrina and Herb is given below: Q(d)-ksfc=b0-b1P sfc +b2 P caffeinated coffee-b3 P bottled water where the “b” in the formula represent coefficient. For the purpose of finding an answer to this solution, the mentioned variables had to be collected which was troublesome task. Proxy variables were used in places where the data was not available as in the case of the number of consumers consuming sugar free chocolate. On the basis of this formula and the input used in the form of different variables in it, it was concluded that price was not a good way of increasing revenue. Increasing price would not increase revenue as per the results of regression analysis and the t-rest performed using the above mentioned formula for quantity demanded.
The reasons for coming up with a new model for demand estimation is that it would help in finding all the factors that affect the demand of the company’s products. This will end up in managers coming up with decisions supported by solid facts and findings with the help of the devised formula instead of random guesses which may cost the company later (Henderson, 1958). A new...
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