Demand Estimation
QD = -2,000-100P + 15A + 25Px + 10y
R2 = 0.85
QD = Quantity demanded of a unit (dependent variable)
P (in cents) = 200 cents per unit (price per unit)
Px (in cents) = 300 cents per unit (price of leading competitor's product)
Y (in dollars) = $5,000 (per capita income in the Standard Metropolitan Statistical Area (SMSA) where the 26 supermarkets are located)
A (in dollars) = $640 (monthly advertising expenditures)
Compute the elasticities for each independent variable
In definition, elasticity is a component employed to define the relation between two variables. More so, the definition is outlined as the change in percentage in a dependent variable instigated by a change in percentage in an independent variable (Mudida, 2003).
Elasticity = % change in dependent variable / % change in independent variable
With these estimates, it is possible to compute Q:
Q= -2,000-100 (2) + 15 (640) + 25 (3) + 10 (5,000)
Q = 57,475
Determine the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Provide a rationale in which you cite your results
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