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      QD=  – 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, QD 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–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:




QD       =          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


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