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+5.2I+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= quanity sold per month P(in cents) = Price of the product = 500 Px(in cents) = Price of leading competitor’s product =600 I(in dollars) = Per capita income of the standard metropolitian statistical area (SMSA) in which the supermarket is located = 5,500 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 Using the 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
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