ECO 550

The following is the equation information from assignment 1. I am attaching the instructions for assignment 2 at the bottom:

Imagine that you work for the maker of a leading brand of low-calorie frozen, microwavable food that estimates the following demand equation for its product using data from 26 supermarkets around the country for the month of April.

Estimated Demand Equationè      Q_D=  - 5200 – 42(P) + 20(Px)+ 0.52( I )+ 0.20(A) + 0.25(M)

     Standard Errors of Estimate è               (2.002)  (17.5)    (6.2)       (2.5)        (0.09)      (0.21)
        (for calculating “t-values”

                      Other Regression statistics       n = 26     R² = 0.55      F = 4.88

Note: In the above regression equation, Q_D is the “dependent variable” and the variables on the right hand side of the equation all are “independent variables.  For a refresher on independent and dependent variables, please go to Sophia’s Website and review the Independent and Dependent Variables tutorial, located at http://www.sophia.org/tutorials/independent-and-dependent-variables--3.

Your supervisor has asked you to compute the elasticities for each independent variable in the above demand equation. Assume the following values for the independent variables:

Q_D       =          Quantity demanded of 3-pack units for your company’s frozen food

P (in dollars)     =          Price of the product = $5 per 3-pack unit

Px (in dollars)    =          Price of leading competitor’s product = $6 per 3-pack unit

I (in dollars)      =          Per capita income of the standard metropolitan statistical area

(SMSA) in which the supermarkets are located = $5,500

A (in dollars)     =          Monthly advertising expenditures = $10,000

M                     =          Number of microwave ovens sold in the SMSA in which each

                                    Supermarket is located = 5,000