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The following demand function has been estimated for Fantasy Pinball machines: Qd = 3500- 40P + 17.5Px + 670U + 0.0090A + 6500N

Where P = monthly rental price of fantasy pinball machines, Px = Monthly rental price of old Chicago pinball machines. U= Current unemployment rate in the 10 largest area A = Advertising expenditure for Fantasy pinball machines, N = Fraction of the US. population between ages 10 and 30

(i)The point Price elasticity of deman for Fantasy pinball machines when P =$150, Px=$100, U = .12, A =$200,000 and N =.35

(ii) The point cross elasticity of demand with respect to Old Chicao pinball machines for hte values of the independent variables given in (i)?

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Divya Singh
Divya SinghLv10
30 Sep 2019

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Related questions

The following question refers to this regression equation. (Standard errors in parentheses)

Qd= 15 - 10 P + 1.5 Adv + 0.4 Px + 2 I

(5.23) (2.29) (0.525) (1.75) (1.5)

R^2 = 0.65

N = 120

F = 35.25

Standard error of Y estimate = 0.565

Qd = Quantity demanded

Consider the case when:

P = Price = 7

Adv = Advertising expense = 54

Px = price of competitor's good = 8

I = average monthly income = 4

a. Calculate the elasticity for each variable at that point and briefly comment on what information this gives you for each variable.

b. Should this firm be concerned if macroeconomic forecasters predict a recession? Explain your answer.

The maker of a leading brand of low-calorie microwavable 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 + 20Px + 5.2l + 0.20A + 0.25M

(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)

R2 = 0.55 n = 26 F = 4.88

Assume the following values for the independent variables:

Q = Quantity sold per month

P (in cents) = Price of the product = 500

Px (in cents) = Price of leading competitor's product = 600

I (in dollars) = Per capita income of the standard metropolitan statistical area (SMSA) in which the supermarket is located = 5,500

A (in dollars) = Monthly advertising expenditure = 10,000

M = Number of microwave ovens sold in the SMSA in which the supermarket is located = 5,000

1. Calculate the quantity using the given values for the independent variables.

2. Calculate the price elasticity of demand.

3.

Based on the price elasticity of demand, do you think that this firm should cut its price to increase its market share?

a. No, demand is inelastic so cutting price would reduce revenue.

b. No, demand is elastic so cutting price would reduce revenue.

c. Yes, demand is inelastic so cutting price would increase revenue.

d. Yes, demand is elastic so cutting price would increase revenue.

4. Using the information in question 1, compute the income elasticity.

5. Based on the price elasticity of income, do you think that this company would be extremely concerned about the impact of a recession on its sales?

a. Yes, income elasticity is relatively high, so a recession (with lower income) would likely reduce sales.

b. Yes, income elasticity is relatively low, so a recession (with lower income) would likely reduce sales.

c. No, income elasticity is relatively high, so a recession would not have a large impact on sales.

d. No, income elasticity is relatively low, so a recession would not have a large impact on sales.

6. What proportion of the variation in sales is explained by the independent variables in question 1?

Questions 1 through 5 are based on the following scenario (adapted from Chapter 5 demand estimation question number 3, p.163)

The maker of a leading brand of low-calorie microwavable 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 + 20Px + 5.2l + 0.20A + 0.25M

(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)

R2 = 0.55 n = 26 F = 4.88

Assume the following values for the independent variables:

Q = Quantity sold per month

P (in cents) = Price of the product = 500

Px (in cents) = Price of leading competitor's product = 600

I (in dollars) = Per capita income of the standard metropolitan statistical area (SMSA) in which the supermarket is located = 5,500

A (in dollars) = Monthly advertising expenditure = 10,000

M = Number of microwave ovens sold in the SMSA in which the supermarket is located = 5,000

Using the information in question 1, compute the income elasticity.

Based on the price elasticity of income, do you think that this company would be extremely concerned about the impact of a recession on its sales?

a. Yes, income elasticity is relatively high, so a recession (with lower income) would likely reduce sales.

b. Yes, income elasticity is relatively low, so a recession (with lower income) would likely reduce sales.

c. No, income elasticity is relatively high, so a recession would not have a large impact on sales.

d. No, income elasticity is relatively low, so a recession would not have a large impact on sales.

What proportion of the variation in sales is explained by the independent variables in question 1?

Ā 

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