Preview

Economic Analysis Tutorial

Good Essays
Open Document
Open Document
419 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Economic Analysis Tutorial
1.

Fukaku Footwear wished to estimate the demand function for its ‘Elite VS600’ women’s shoes. The company’s economist believed that the main determinants of ‘Elite VS600’ shoes are: i) ii) iii) iv) the price of the shoes (Px) the price of a competitor’s shoes Dr. Martin (Py) the price of another competitor’s shoes ‘Madame69’ (Pz) and disposable per capita income (Y)

A regression was run by using SPSS package and the result is shown as follows: LS//Dependent Variable is Qx Variable Coefficient C 250.7 Px -410.3 Py 240.3 Pz 180.3 Y 1.23 R-Squared = 0.857 S.E of regression = 265.6 Qx represents quantity (pairs) demanded per month. The current values of the dependent variables are Px = $80, Py = $75, Pz $82.5 and Y = $5250 a) Calculate the price and income elasticities of demand for ‘Elite VS600’ shoes. What do these values mean?

Standard Error -150.3 180.5 70.4 0.23

t-statistic 2.73 1.33 2.56 5.36

Find Qx; Qx = C – Px + Py + Pz + Y = 250.7 – 410.3Px + 240.3Py + 180.3Pz + 1.23Y = 250.7 – 410.3(80) + 240.3(75) + 180.3(82.5) + 1.23(5250) = 6781.45

i)

= -4.84 (elastic) ii) = 0.952 (necessity goods)
b) Derive the equation of the demand curve and write it in the conventional way.

Qx Px

= 250.7 – 410.3Px + 240.3(75) + 180.3(82.5) + 1.23(5250) = 39605.45 – 410.3Px = 96.528 – 0.00244Qx

c)

Suppose that the marginal cost of Elite VS600 is constant at $50, what is the profit maximizing price and output?

» MC = MR Given MC = 50 Find MR = TR =PxQ = (96.528 – 0.00244Qx) x Qx = 96.528Qx – 0.00244Qx2 = 96.528 – 0.00488Qx » MC = MR = 50 96.528 – 0.00488Qx = 50 Qx = 9534.43 → (i) Put (i) into Px demand curve, Px = 96.528 – 0.00244 (9534.43) = 73.26
d) At the profit maximizing price, what range of sales volume can be expected at 95% confidence limits?

MR =

At max TR; Px = 73.26 Qx = 9534.43 Given SEE = 265.6 t interval value (Rule of Thumb) = 2 SEE = Q + t-value (SEE) = (+) 9534.43 + 2 (265.6) = 10065.63 = (-) 9534.43 - 2 (265.6) =

You May Also Find These Documents Helpful

  • Satisfactory Essays

    (g) What should the wholesale price of the camera be in order to maximize Profit?…

    • 4756 Words
    • 1 Page
    Satisfactory Essays
  • Satisfactory Essays

    Problem Set 3

    • 706 Words
    • 4 Pages

    Problem Set 3 is to be completed by 11:59 p.m. (ET) on Monday of Module/Week 6.…

    • 706 Words
    • 4 Pages
    Satisfactory Essays
  • Powerful Essays

    8) Assume the price of a product sold by a purely competitive firm is $5. Given the data in the accompanying table (bottom left), at what output is the total profit highest in the short run?…

    • 3065 Words
    • 14 Pages
    Powerful Essays
  • Good Essays

    Rock "N" Rap

    • 597 Words
    • 3 Pages

    Explain how you found an answer to Question 3 and why you think your answer gives the maximum profit. I know this because this is the highest point in the feasible region. I it’s hard to tell exactly just by graphing so the problem must be solved algebraically. I…

    • 597 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables:…

    • 517 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    prob set 1

    • 629 Words
    • 3 Pages

    a.) Draw and properly label the demand and supply graphs (this means you must label the axes and any lines you include on the graph).…

    • 629 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Econ 213 PS1

    • 502 Words
    • 3 Pages

    a.) Draw and properly label the demand and supply graphs (this means you must label the axes and any lines you include on the graph).…

    • 502 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Sugar Case answer

    • 1050 Words
    • 5 Pages

    _Then solve Q = a - 0.285P using Q = 20.4 and P = 21.5_ _Q = 26.53 - 0.285P_ _._…

    • 1050 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    4. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:…

    • 1210 Words
    • 5 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Bus 640 Ch7-Ap-1

    • 415 Words
    • 2 Pages

    C. At the values of P, M, and Pr given, what are the estimated values of the price (E), income (Em), and cross-price elasticity (Exr) of demand?…

    • 415 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Variable Costs

    • 1487 Words
    • 9 Pages

    3. A computer manufacturer can produce 5 computers for $5,000 and 10 computers for $7,500. Based on this information, what is the marginal cost per computer of the 6th through 10th computers?…

    • 1487 Words
    • 9 Pages
    Powerful Essays
  • Good Essays

    (205 * 400 + 97 * 1000) – 28.7 – (205+97) – 212939 = ($42,606)…

    • 330 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    Starting with the estimated demand function for Chevrolets given in Problem 2, assume that the average value of the independent variables changes to N = 225 million, I = $ 12,000, P F = $ 10,000, P G = 100 cents, A = $ 250,000, and P I = 0 ( i. e., the incentives are phased out). ( a) Find the equation of the new demand curve for Chevrolets. ( b) Plot this new demand curve, D' C , and, on the…

    • 2324 Words
    • 9 Pages
    Powerful Essays
  • Satisfactory Essays

    Case 1 Regan Engineering

    • 247 Words
    • 3 Pages

    Po=2.44/ (1.17) + 2.79/ (1.17)2 +3.19/ (1.17)3 +3.65/ (1.17)4 +4.18/ (1.17)5 +4.79/ (1.17)6 + 58.73/ (1.17)6…

    • 247 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Yorktown Technology

    • 483 Words
    • 2 Pages

    The equation that was related to the problem is {x=4000-40p}. In order to find the price the first step: {40p} has to be added; which will place 40p on the left side of the equation. The next step is to place the x on the right side of the equation by negating x. Once (-x) has been applied the equation should look like {40p=400-x}. Then the third step would be to divide everything by 40. After dividing the equation by 40 you will find the price of the equation. The formula for the price should look like (p=100-25x).…

    • 483 Words
    • 2 Pages
    Satisfactory Essays