Essay: Demand Analysis; An Example

7 Dec

Essay: Demand Analysis; An Example

Sample Essay

Clean Supreme is a company that manufactures and sells powdered laundry detergent in the United States. The firm has estimated the following regression equation for the demand of its Brand Z detergent:
 

QZ = 1.0 – 2.0PZ + 0.7I + 1.5PA + 0.5PB + 1.5A

Where QZ = sales of powdered laundry detergent brand Z, in millions of boxes per year

PZ = price of powdered laundry detergent brand Z, in dollars per box

I = personal disposable income, in trillions of dollars per year
PA = price of the competitive brand of powdered laundry detergent, in dollars per box
PB = price of liquid laundry detergent, in dollars per bottle
A = advertising expenses for powdered laundry detergent brand Z, in thousands of dollars per year

Question 1

For the current year, assume that PZ = $6, I = 2.3, PA = $6.25, PB = $4.50, and A = $1.5. What is the expected demand of the Brand Z detergent for this year?
Answer:

When, PZ = $6

I = 2.3

PA – $6.25

PB = $4.50

A = 1.5

Then, using the regression equation for demand:

QZ = 1.0 – 2.0PZ + 0.7I + 1.5PA + 0.5PB + 1.5A

QZ = 1.0 – 2.0 (6) + 0.7 (2.3) + 1.5 (6.25) + 0.5 (4.5) + 1.5 (1.5)

QZ = 4.485

Therefore, the demand for the detergent is 4.485

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