Question

16. The research department of the NEBICO Biscuit Company (NBC) estimate the following regression for the demand of the biscuit it sells: Qx = 1.0 – 2Px + 1.5Y + 0.8Py – 3 Pm + 1A. a. Estimate the demand for NEBICO biscuit when price of biscuit (Px) = Rs 20, income of the consumers (Y) = Rs 400, price of Substitute (Py) = Rs 22, Price of complements (Pm) = Rs 50 and advertising expenditure of biscuit (A) = Rs 30. 5 b. Using elasticities, estimate the level of demand for next year if the NBC reduces Px by 10 percent, increases advertising expenditure by 20 percent. Similarly, income of the consumer increases by 5 percent, price of substitute increases by 10 percent and price of complement decreases by 8 percent. 

Answer 1

$Q_x = 1.0 – 2P_x + 1.5Y + 0.8P_y – 3 P_m + 1A.$

$Q_x = 1.0 – 2(20) + 1.5(400) + 0.8(22) – 3(50) + 1(30)$

$= 458.6$

New Quantities

Y= 420

P$_x= 18$

P$_y=24.2$

$P_m= 46$

A= 36

$Q_x = 1.0 – 2(18) + 1.5(420) + 0.8(24.2) – 3(46) + 1(36)$

=$512.36$