View the step-by-step solution to: Demand Estimation Analysis of Low-Calorie Microwaveable

Assignment 2: Operations Decision Due W...
Assignment 2: Operations Decision
Due Week 6 and worth 300 points
Using the regression results and the other computations from Assignment 1, determine the market structure in which the low-calorie food company operates.
Use the Internet to research two (2) of the leading competitors in the low-calorie microwavable food industry, and take note of their pricing strategies, profitability, and their relationships within the industry (worldwide).
Write a six to eight (6-8) page paper in which you:
Outline a plan that will assess the effectiveness of the market structure for the company’s operations.
Suppose the business operations have now changed from the market structure specified in the scenario. Determine two (2) likely factors that might have caused the change. Predict the primary manner in which this change would likely impact business operations in the new market environment.
Analyze the major short-run and long-run production and cost functions for the low-calorie microwaveable food company. Suggest substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short-run and the long-run.
Determine the possible circumstances under which the company should discontinue operations. Suggest key actions that management should take in order to confront these circumstances. Provide a rationale for your response.
Suggest one (1) pricing policy that will enable your low-calorie microwavable food company to maximize profits. Provide a rationale for your suggestion.
Outline a plan, based on the information provided in the scenario, that the company could use in order to evaluate its financial performance. Consider all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.
Recommend two (2) actions that the company could take in order to improve its profitability and deliver more value to its stakeholders. Outline, in brief, a plan to implement your recommendations.
Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
Analyze short-run and long-run production and cost functions.
Apply macroeconomic concepts to changes in global and national economies and how they affect economic growth, inflation, interest rates, and wage rates.
Evaluate the profit-maximizing price and output level for given operating costs for monopolies and firms in competitive industries.
Use technology and information resources to research issues in managerial economics and globalization.
Write clearly and concisely about managerial economics and globalization using proper writing mechanics
Megan Spears 01242014.docx

Demand Estimation Analysis of Low-Calorie Microwaveable Food

Megan M. Spears

Strayer University

Submitted to

Professor Hong Kim

ECO550041VA016-1142-001: Managerial Economics & Globalization
January 24, 2014

Imagine that you work for the maker of a leading brand of low-calorie microwavable food that
estimates the following demand equation for its product using data from 26 supermarkets
around the country for the month of April.
For a refresher on independent and dependent variables, please go to Sophias Website and
review the Independent and Dependent Variables tutorial, located
Note: Your professor will provide you with the equation and data necessary for you to complete
this assignment. You will find this information attached to Assignment 1 within the course shell.
Write a four to six (4-6) page paper in which you:
1. Compute the elasticities for each independent variable. Note: Write down all of your
2. Determine the implications for each of the computed elasticities for the business in terms
of short-term and long-term pricing strategies. Provide a rationale in which you cite your
3. Recommend whether you believe that this firm should or should not cut its price to
increase its market share. Provide support for your recommendation.
4. Assume that all the factors affecting demand in this model remain the same, but that the
price has changed. Further assume that the price changes are 100, 200, 300, 400, 500,
600 dollars.
a. Plot the demand curve for the firm.
b. Plot the corresponding supply curve on the same graph using the supply function
Q = 5200 + 45P with the same prices.
c. Determine the equilibrium price and quantity.
d. Outline the significant factors that could cause changes in supply and demand for
the product. Determine the primary manner in which both the short-term and the
long-term changes in market conditions could impact the demand for, and the
supply, of the product.
5. Indicate the crucial factors that could cause rightward shifts and leftward shifts of the
demand and supply curves.
6. Use at least three (3) quality academic resources in this assignment.

Professors Name:

QD = 20,000 - 10P + 1500A + 5PX + 10 I
Since R2 is considerable high, the model explains the demand quite well. Putting the
values of P, A, Px and I in the above equation, we get,
Converting all price into dollars, we get,
QD = 20,000 (108000) + (150064) + (59000) + (105000)
= 131000

Now, own price elasticity (ep) =

= -10, P = 8000, Q = 131000
Own Price elasticity (ep) = - 10 = - 0.61 (approx.)

Cross price elasticity (exy) =

= 5, Px = 9000, Q = 131000
Cross price elasticity (exy) = 5 = 0.34 (approx.)

Income elasticity (eI) =

= 10, I = 5000, Q = 131000

Income elasticity (eI) = 10 = 0.38 (approx.)

Advertisement elasticity (eA) =

= 1500, A = 64, Q = 131000
Advertisement elasticity (eA) = 1500 = 0.73 (approx.)

From the above results, we can see that the own price elasticity is - 0.61. Thus the

demand for the low-calorie microwavable food is inelastic in nature. This implies that an

increase in the price of the food leads to the fall of the quantity demanded by less than
proportionate amount.
Income elasticity of the good calculated is 0.38. This implies that the good selected is normal
The cross price elasticity is 0.34. Therefore the two goods are almost substitute goods.
Finally, coming to the advertisement elasticity, we can see that the advertisement elasticity is
0.73. Thus advertisement has an important impact on the sales of the product.

Since price elasticity is less than 1, total revenue will fall if price falls. Moreover

the cross price elasticity of the product is almost close to zero. So, if the firm will never lower its
price to increase its market share.

i) The demand curve s drawn below:


iii) At these prices there is always an excess supply. Thus market forces cannot determine the

iv) The factors can influence demand and supply are:

Demand Advertisement, Income, price of the competitors product, etc.
Supply technological improvement, supply shocks, etc.

Increase in advertisement expenditure can increase the demand this will shift the

demand curve rightward.

Similarly any reduction in advertisement expenditure will shift the demand curve leftward.
Similarly, a rise in per capita income will shift the demand curve rightward and viceversa.
Now, the supply curve can shift rightward if there is any improvement in the technology. On the
other hand any supply shock can shift the supply curve leftward.

Varian, H. R. (2011). Intermediate Microeconomics: A Modern Approach (8th ed.). NY: Norton
Walter Nicholson, Christopher Snyder (2012). Microeconomic Theory: Basic Principles and
Extensions (11th ed.). USA: Cengage Learning
TR Jain, VK Ohri (2010). Introductory Microeconomics and Macroeconomics (7th ed.). India:


Brin, David (1998). The Transparent Society: Will Technology Force Us to Choose between
Prvacy and Freedom? Perseus Books. Reading, MA. (pgs 190-212)
Eltis, Karen (2011). The Judicial Syste in the Digital Age: Revisiting the Relationship between
Privacy and Accessibility in the Cyber Context. McGill Law Journal, Vol. 56, No. 2,

Solove, Daniel J. (2004). The Digital Person: Technology and Privacy in the Information Age
New York University Press. (pgs 56, 127)

Retrieved From :, November 2, 2012.

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