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  

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

-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.

 

 

 

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