Economics

 

You are the manager of a large automobile dealership who wants to learn more about the

effectiveness of various discounts offered to customers over the past 14 months. Following

are the average negotiated prices for each month and the quantities sold of a basic model

(adjusted for various options) over this period of time.

 

a. Graph this information on a scatter plot. Estimate the demand equation. What do the

regression results indicate about the desirability of discounting the price? Explain.

Month Price Quantity

Jan. 12,500 15

Feb. 12,200 17

Mar. 11,900 16

Apr. 12,000 18

May 11,800 20

June 12,500 18

July 11,700 22

Aug. 12,100 15

Sept. 11,400 22

Oct. 11,400 25

Nov. 11,200 24

Dec. 11,000 30

Jan. 10,800 25

Feb. 10,000 28

b. What other factors besides price might be included in this equation? Do you foresee

any difficulty in obtaining these additional data or incorporating them in the regression

analysis?

 

3. 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 5 Quantity sold per month

P (in cents) 5 Price of the product = 500

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

I (in dollars) 5 Per capita income of the standard metropolitan statistical area (SMSA) in

which the supermarket is located = 5,500

A (in dollars) 5 Monthly advertising expenditure = 10,000

M 5 Number of microwave ovens sold in the SMSA in which the supermarket is

located = 5,000

Using this information, answer the following questions:

a. Compute elasticities for each variable.

b. How concerned do you think this company would be about the impact of a recession

on its sales? Explain.

c. Do you think that this firm should cut its price to increase its market share? Explain.

d. What proportion of the variation in sales is explained by the independent variables in

the equations? How confident are you about this answer? Explain.

 

4. The sales data for the Lonestar Sports Apparel Company for the last 12 years are as follows:

2001 $400,000 2007 $617,000

2002 440,000 2008 654,000

2003 480,000 2009 700,000

2004 518,000 2010 756,000

2005 554,000 2011 824,000

2006 587,000 2012 906,000

a. What is the 2001–2012 compound growth rate?

b. Using the result obtained in part a, what is your 2013 projection?

c. If you were to make your own projection, what would you forecast?

 

5. The Miracle Corporation had the following sales during the past 10 years (in thousands of

dollars):

a. Calculate a trend line, and forecast sales for 2013. How confident are you of this forecast?

b. Use exponential smoothing with a smoothing factor w = 0.7. What is your 2013 forecast?

How confident are you of this forecast?

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Status NEW Posted 03 May 2017 12:05 AM My Price 8.00

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