General Cereals is using a regression model to estimate the demand for Tweety Sweeties, a whistle-shaped, sugar-coated cereal for children. The following multiplicative exponential demand function is being used:

QD (D is lower to the right)= 6,280P-2.15 A1.05 N3.70 (2.15, 1.05 3.70 are above the letters to the right)

where QD= quantity demanded in 10oz. boxes

P = price per box, in dollars

A = advertising expenditures on daytime television in dollars

N= proportion under 12 years old

1. Determine the point price elasticity of demand for Tweetie Sweeties

2. Determine the advertising elasticity of demand

3. What interpretation would you give to the exponent of N?

QUESTION #2

The demand for haddock has been estimated as:

log Q= a+b log P+c log I + d log Pm

where Q= quantity of haddock sold in New England

P= price per pound of haddock

I- a measure of personal income in the New England region

Pm= an index of the price of meat and poultry

1. If b = 2.174, c= 0.461 and d= 1.909:

Determine the price elasticity of demand

Determine the income elasticity of demand

Determine the cross price elasticity of demand

How would you characterize the demand for haddock?

Suppose disposable income is expected to increase by 5% next year. Assuming all other factors remain constant, forecast the percentage of change in the quantity of haddock demanded next year.

Question #3

An estimate of the demand function for household furniture produced the following results: F=0.0036Y (1.08 exponent)R(0.16 exponent) P -0.48 (exponent) r2 = 0.996

where F= furniture expenditures per household

Y= disposable personal income per household

R = value of private residential construction per household

P= ratio of the furniture price index to the consumer price index

a. Determine the point price and income elasticities for household furniture.

What interpretation would you give to the exponent for R? Why do you suppose R was included in the equation as a variable?

If you were a supplier to the furniture manufacturer, would you have preferred to see the analysis performed in physical sales units rather than dollars of revenue? How woul dthis change alter the interpretation of the price coeeficient presently estimated as .0.48?

November 3, 2019