Question 1: - What are the relevant factors to be considered for modelling a demand function for MAA Mustard Oil? How is each factor related to elasticities of demand? How does the estimation of demand function incorporate the impact of each factor using the multiple regression technique? Answer1: In case of the MAA Mustard Oil, factors considering for the demand function are a. Own Price b. Competitor price c. Increase in per capita income d. Promotional Expense The above-mentioned factors are also related to the elasticities of demand, in that way demand of the oil is depend on the following • Own - price (the current market price at which HOI were selling), • Competitor price (if the competitor ’s selling at lower price than HOI, then demand will automatically decrease or vice versa), • Increase in per capita income (if income rises by some percent, consumers will shift to other brands for many reasons including health, premium products) • lastly, Advertising (how effective HOI market their product among the consumers and also, considered the competitor’s firm how they market their produc t when it compared to HOI? Are competitor’s spending more than HOI?) By combining all the factors, we can conclude that if there is a change in one factor will directly leads to the demand of the product, either it will increase or decrease. Other factors include the weather or the farming of the mustard seeds. The equation of the demand function for the HOI is: Q d = 5024.58 – 136.62(P own_Price) + 117.41 (P Competitor price ) - .28(I per capita) + 7.87(P Promotional Expense ) By interpreting the above quantity demand equation, • As the income per capita is negative (-.28I) which means the MAA Mustard oil is an inferior good that means if the income of the consumer went up then the quantity demanded of the oil went down because consumer will buy premium products or they may consume more healthy oils rather than mustard oil. So, the demand curve will shift to the left. • The promotional expense is positive (+7.87) indicates that spending more on advertising will lead to the increase in demand of the oil i.e. demand curve will shift right. • Considering the competitive price is positive in the above quantity demand function (+117.41) means MAA Mustard oil is a substitute product , suppose if competitor’s rises the price and then
You've reached the end of your free preview.
Want to read all 6 pages?
- Spring '18
- Supply And Demand, Maa Mustard Oil