Supply and Demand

Compute the elasticities for each independent variable. Note: Write down all of your calculations.

An independent variable is a variable that is not affected by other variables.

F = 4.88

xi = the independent variable in the regression

Quantity demand = (3units )/4.88 . (d(4.88))/(d(3))= 3/4.88 . 1/26=0.024

Price of product = $5/4.88 . 1/26=0.039

Price of leading competitor products = $5/4.88 . 1/26=0.047

Per-capita income = $5500/4.88 . 1/26 43.35

Monthly advertising expenditure = $10000/4.88 . 1/26=78.81

Number of Microwaves dinners sold = 5000/4.88 . 1/26=39.40

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 results.

Short-term pricing defines a short period of time, usually within a year of which products maturity or returns are expected. Each independent variable calculated has an effect to the short-term pricing strategy for the product. The low demand quantity elasticity will impact short-term pricing by forcing it to reduce with the hopes of boosting demand and thus selling the product fast. The low price of product elasticity will impact short-term pricing strategy to ensure that the pricing is kept at equilibrium in accordance to the demand of the product. In this manner, consumers may develop the need of the product having compared the favorable price. The price of the leading competitor’s elasticity will affect the short term pricing strategy by forcing the company in the scenario to adjust its prices to the leading competitor in order to gain some edge and increase its market share. The mid-sized per-capita income elasticity will determine this pricing strategy by regulating it to the level of affordability to the majority of the population. The high advertising expenditure elasticity would directly affect the short term pricing strategy by given the margins of profits. Finally, the elasticity for the number of microwave dinners sold during that specific period will influence its short time pricing in a way that would boost sales (Nicholson & Snyder, 2007).

Long term pricing strategies define the expected price of products sold in a long agreement usually done in multiple deliveries and exceeding a period of one year since short term is typically within a year. The low quantity demand elasticity would mean that little would change with the long time pricing despite the change of demand for the good.