ECO-550

DEMAND ESTIMATION 8

Assignment 1: Operations Decision

Timothy E Sands, Sr.

Shadrack Koros

Strayer University

ECO-550, Managerial Economics & Globalization

October 23, 2017

Introduction/Demand Estimation

In today's business society, there are many ways an organization can develop strategies to maintain their competitive edge. Changing with trends and calculating helps to estimate changes, these are an integral part of competing with competitors in your industry. By using mathematical analysis are ways to forecast market sales and demands will help to maintain our leading edge in sales of our low-calorie frozen microwavable brand foods and products. There are many strategies managers uses to control changes and to help mitigate loss. According to McGuigan, Moyer, and Harris, there are many factors under the control management, such as pricing, advertising, marketing, product quality, and customer service (McGuigan, Moyer, & deB. Harris, 2014, p. 72). In this assignment, The Demand Analysis will be utilized to calculate the leading brand of low-calorie, frozen microwavable food demand, and the regression equations will be used to compute the elasticities for each independent variable. There are three major managerial factors in the demand analysis procedure (McGuigan p. 62, 2014) that consist of and includes marketing teams to manage the product demand, and to predict unit sales. Also, plays a critical part in operational decision making, while projecting revenue portion and, the organizational cash flow stream for financial planning (McGuigan, 2014).

Elasticity Computing

Management of the leading maker of the product brand of frozen microwavable food with low calories, collected marketing data from 26 supermarkets to estimate equation product demand from around the country thru the scheduled month of April, to obtain the elasticity and regression equation. To calculate the elasticity, According to (McGuigan, 2014).

“The commonly used measure of the responsiveness of quantity demanded or supplied” in changing any variables that influence the demand and supply functions is elasticity.

In general, elasticity should be as ratios of percentages changed in quantity to the percentage change that determinants, the ceteris paribus (McGuigan, Moyer & deB. Harris 2014, p. 73).

Option 1: of the Demand estimation assignment was chosen. To calculate, I will use the following calculations of the regression equation of the standard command errors for the demand for widgets.

The following results for the regression equation demand are:

QD = 5200 - 42P + 20PX + 5.2I + 0.20A + 0.25M

Calculation of elasticities and each independent variable where ceteris paribus exists:

QD = Quantity demand of 3 pack units

P (in cents) = Price of product = 500 cents per 3 pack units.

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

cents per 3-pack units.

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

metropolitan statistical area.

(SMSA) in which the supermarkets are located = $5,000

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

M = Number of microwave ovens sold in the SMSA in which the supermarket is

located = 5,000.

Elasticities are arranged in Demand equations after each independent variable conversion. To calculate all money will be converted to dollars., (I.E., 500 cents equates to $5).

Elasticities are calculated below as follows:

Quantity Demanded (QD) = (-5200)-42(500) + 20(600) +5.2(5,500) +.20(10,000) +.25(5,000)

= (-5200)-21000+12000+28600+2000+1250

=-262000+12000+28600+2000+1250

=17650

Price elasticity P= -42(500) /17650

P= -21000/17650

P = 1.19

Competitor Price (PX) = 20(600)/17650

PX = 12000/17650

PX = .68

Income Elasticity YED = 5.2 (5,500 / 17650)

YED = 5.2 x .311

YED = 1.62

Advertising Elasticity (AE) = .20(10,000)/17650

AE = 2000/17650

AE = .11

Supply Elasticity (SE) = .25 (5000)/17650

SE = 1250/17650

SE = .07

Computed Elasticities

Elasticity is a ratio of percentage change in quantity to the percentage change in a determinant. (Amadeo, 2017). The usage of variables will be used to calculate the elasticities and ceteris paribus with other conditions remaining the same. According to McGuigan (2014), elasticity is most commonly used of the responsiveness of quantity demanded or supplied to changes in any of the variables that influence the demand and supply functions. I have calculated the implications for each of the computed elasticities for the business regarding short-term and long-term pricing strategies which are: For each $5 per 3-pack unit sold, is identified as elastic for each package sold. By lowering the price elasticity of 1.19 which is above the average of 1, of the price elasticity, in the product drops, will increase the demand. This price is considered inelastic in comparison to the competitor's elasticity which is less than 1. I would suggest that the company hold their price in the long-term after making the initial price adjustment in the short-term when the value was near zero at the beginning. I would suggest continuing using the same variable if the competitor's product remains at the same price. In the long-term, when competitors change their price, then recalculating your costs should be performed to get a better place in the market. Based on the product measured per capita income variable is considered as an inelastic, after products identified as inelastic prices can be increased as revenue in the short-term. The company could increase their price over the short-term to increase their revenue but should not overprice their product during a long-term because the numbers calculations were near 1. The income elasticity is above one, which represents an elastic income. The product was computed and measured as elastic, and for the monthly advertising expenditures as a variable. In short-term, the monthly advertising expenditure calculated price will be lowered. The final variable was calculated as elastics and used in the sale of some microwave ovens. I have been determined to increase revenue the company should lower their prices in both short and long-term conditions. With the final variables calculated, it has been determined to increase the maker revenue to lower their prices and would be best for the organization in both short and long-term product marketing.

Pricing Recommendations

With the analysis information of the demand equation based on the elasticities about each independent variable. The company will make their recommendation and decide to either increase or decrease pricing to increase their market shares. Based on the calculations, from the information provided above it would be in the firm’s best interest to decide on decreasing prices to increase their market shares. The demand will increase, as the price decreases based on the price elasticity calculation. With no prediction of market changes or competitive strategy from competitors, as the demand for product increases, the company market share based on the product (ceteris paribus) will increase. The company should continue to increase their market shares. With any changes in coefficients, the company would recalculate their demand equation and adjust their pricing strategy.

Plot of Demand and Supply Curves

If all the factors affecting the demand are ceteris paribus (remaining the same) or constant and the price has changed. Below, I have attached graphic's and charts models to show equations for quantity demand and supplies. The changes are plotted on the graphs to reflect the demand curve decrease based on the price of the production. The data plotted are used to use to establish the equilibrium price and quantity.

Figure 1: Displays the Demand and supply equation and the coordinating chart to show the demand and supply curve.

Determining Equilibrium

There are serval ways to calculate Market equilibrium.

1. Demand and Supply schedule

2. Demand and Supply curves

3. Demand and supply formulas

As shown in the graphic chart above the Equilibrium price and quantity are determined by the intersection of supply and demand. The numbers that were calculated and the price and quantity must be equal which is called the compromise price (Perera, 2016). After calculating the equilibrium price, the equilibrium quantity can be determined by plugging the price into other equations. I calculated the equilibrium price at 378.69 and the equilibrium quantity at 22744.

Several significant factors may affect the demand and supply of the low-calorie, for frozen microwaveable dinners. One effective factor is Inferior products versus quality product are one factor that could affect the changes of the demand and supply of the low-calorie, frozen microwavable food. The inferior product declines as the income price increases and the acceptable product would remain both increasingly as the price rises and demand increases together (McGuigan 2014). An outlier is an observation that lies outside the overall pattern of a distribution (Moore and McCabe 1999).

One significant factor that could affect both the short-term and long-term changes in market conditions are supplies are not the right amount of quantity ready for sale or increase or decrease in sales of products. Demand factors include changes in prices of related good or change in consumers income are some significant factors. Another is change in expectations.

Crucial Factors

According to Roberts (2015), there are a few crucial factors that could affect or cause a rightward or leftward shift of the demand and supply curves for this product. When good prices increase, and other things remain, ceteris paribus will lead consumers to demand a lesser quantity of the product. When prices are too high, then an excess of supply (a surplus) and prices will become lower and if prices are too low, then becomes an excess demand (a shortage), and cost would increase. Another change that could cause a change in the supply and demand curve are changes in technology and resources.

Conclusion

In conclusion, the determined is that the low calorie, frozen microwavable dinner product has an equilibrium price and quantity and has shown to be very marketable to increase prices for short-term and long-term with will increase product market value for the company and their shareholders.

REFERENCE:

Amadeo, Kimberly (June 2017). Ceteris Paribus: Definition, Pronunciation and Examples: The Balance. Retrieved from: https://www.thebalance.com/ceteris-paribus-definition-pronunciation-and-examples-3305723

McGuigan, J. R., Moyer, R. C., & Harris, F. H. deB. (2014). Managerial economics: applications, strategies and tactics (13th ed.). Stamford, CT: Cengage Learning.

Moore, D. S. and McCabe, G. P. Introduction to the Practice of Statistics, 3rd ed. New York: W. H. Freeman, 1999

Perera, G. (October 2016) How to find Equilibrium Price and Quantity: Pediaa; Retrieved from:

http://pediaa.com/how-to-find-equilibrium-price-and-quantity/

Roberts, P. C. (2016). Supply and demand in the gold and silver futures markets. Institute for Political Economy. Retrieved from http://www.paulcraigroberts.org/2015/07/27/supply-demand-gold-silver-futures-markets-paul-craig-roberts-dave-kranzler/

Sophia.org/tutorials/independent-and-dependent-variables—3., Retrieved from: https://www.sophia.org/tutorials/independent-and-dependent-variables--3

Price 500 400 300 200 100 0 -100 Quantity Demanded 17650 21850 26050 30250 34450 38650 42850 Supplied 31640 23730 15820 7910 0.11 -7909.89 -7930

Quantity Demanded 17650 21850 26050 30250 34450 38650 42850 500 400 300 200 100 0 -100 Supply 31640 23730 15820 7910 0.11 -7909.89 -7930 500 400 300 200 100 0