Assignment

Suppose that GM’s smith estimated the following regression equation for Chevrolet
automobiles;

Qc = 100,000 – 100 Pc + 2,000 N + 50 I + 30 Pf – 1000 Pg + 3 A + 40,000 Pi

Where Qc = Quantity demanded per year of Chevrolet automobiles

Pc = Price of Chevrolet Automobiles, in dollars

N = Population of United states in Million

I = per capita disposable income, in dollars

Pf = Price of Ford Automobiles, in dollars

Pg = Real price of gasoline, in cents per gallon

A = Advertising expenditure by Chevrolet, in dollars per year.

Pi = credit incentives to purchase Chevrolet, in % points below the rate of interest on

borrowing in absence of incentives.

Requirement:

1. Find the value of Qc if the average value of Pc = dollar 9000, N = 200 Million, I =
dollar 10000, Pf = dollar 8000, Pg = 80 cents, A = dollar 200000, and if Pi = 1.
Derive the equation for the demand curve for Chevrolet.

2. Assume that the average value of independent variables changes to N = 225

million, I = dollar 120000, Pf = dollar 10000, G = 100 cents, A = $250000, and Pi =
0. Find the equation of the new demand curve. Assume the price of Chevrolet
is 12000,9000 and 6000

3. Find out all elasticities with respect to QC.

4. If Qc = $900,000, the company expects the following changes in % age for the
coming year. 2% increase in Pc, 1% change in N, 3% increase in I, 0.5% increase
in Pf, 0.8% increase in Pg, 10% increase in A, 2% decrease in Pi. Find out the
estimated Qc for the upcoming year.
Activity

The research department of the cornflex corpora ration (FC) estimated the
following regression for the demand of the cornflex it sells: Qx = 1.0 – 2.0 Px +
i.5 I + 0.8 Py – 3.0 Pm + 1.0 A.

Where Qx = sells of CFC cornflex, in millions.

Px = the price of CFC cornflex, in dollars.

I = personal disposable income, in trillion of dolars per year.

Py= price of competitor brand of cornflex, in dollar.

Pm price of mil, in dollars

A = advertising expenditure of CFC, in hundreds of thousands of dollars per year.

This year, Px = $2, I = $4, Py = $2.50, Pm = $1, A =$2.

Requirements:

1. Calculate the sales of CFC cornflex this year.

2. Calculate the elacstitiy of sells with respect to each variable in the

demand function.

3. Estimate the level of sales next year if CFC reduces Px by 10 %, increasing

advertising by 20%, I rises by 5%, Py is reduced by 10% and Pm remains
unchanged.

4. By how much should CFC change its advertising if it wants its sells to be
30% higher than this year?