Compute 5,500. The equation with the variables plugged

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Compute
the elasticities for each independent variable

The values of these variables
are   P = 500 cents per 3 pack unit, PX = 600 cents
per 3 pack unit, I =
5,500, A = 10,000, and M = 5,500. The equation with the variables plugged in equals  


5200 – 42(500)+ 20(600) + 5.2(5,500) + 0.20(10,000) + 0.25(5000)=

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-5200-21000+12000+28600+2000+1250=

-26200+40600+3375=

-26200+43975=17775

The formula for which
Price Elasticity can be calculated from is: E = (P/Q) *(dQ/dP)

Using part of the Price
Elasticity equation (dQ/dP), and looking back at the regression equation we
know that (dQ/dP) equals P or 42. Using the regression equation again to solve
for E; E = (500/17775) (-42) = -1.19

The other independent
variables are solved in a similar fashion:

EPX (Cross Price
Elasticity): (20) (600/17775) = 0.68

EI (Income Elasticity): (5.2)
(5500/17775) = 1.62

EA (Advertisements
Elasticity): (0.20) (10,000/17775) = .11

EM (Micro-Oven)
Elasticity: (0.25) (5000/17775) = 0.07

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.

Price Elasticity equals
-1.19, which indicates that as the product increases by 1%, the demand for this
product drops to 1.19 percent. So, in terms of a short term strategy, the increase
in the price of the product would cause a loss in customers, whereas in a long term
pricing strategy there might be an increase in customers since customers would
have more time to adjust to the new prices (https://research-methodology.net/the-difference-between-short-run-and-long-run-price-elasticity-of-demand-for-fuel/)

Cross Price Elasticity
equals 0.68. Cross Price Elasticity is directly related to the 1% increase in
the competitor’s product because as the competitor’s price goes up by 1%, Cross
Price Equality increases by 0.68.  Regarding
cross price elasticity the product can be said to be inelastic, since the
product will not have any negative impacts on the sales.

 

 

 

Categories: Strategy

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