ECO 550 ASSIGNMENT 1 AND 2

I ALSO INCLUDE LECTURER SOLUTION FOR ASSIGNMENT 1 AND 2 CALCULATIONS FOR YOUR GUIDE AS A BONUS

Assignment 1: Demand Estimation

Imagine that you work for the maker of a leading brand of low-calorie, frozen microwavable food that estimates the following demand equation for its product using data from 26 supermarkets around the country for the month of April.

For a refresher on independent and dependent variables, please go to Sophia’s Website and review the Independent and Dependent Variables tutorial, located at http://www.sophia.org/tutorials/independent-and-dependent-variables–3.

Option 1
Note: The following is a regression equation. Standard errors are in parentheses for the demand for widgets.
QD = – 5200 – 42P + 20PX + 5.2I + .20A + .25M
(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)
R2 = 0.55 n = 26 F = 4.88

Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables:

Q = Quantity demanded of 3-pack units
P (in cents) = Price of the product = 500 cents per 3-pack unit
PX (in cents) = Price of leading competitor’s product = 600 cents per 3-pack unit
I (in dollars) = Per capita income of the standard metropolitan statistical area
(SMSA) in which the supermarkets are located = $5,500
A (in dollars) = Monthly advertising expenditures = $10,000
M = Number of microwave ovens sold in the SMSA in which the
supermarkets are located = 5,000
Write a four to six (4-6) page paper in which you:

1.Compute the elasticities for each independent variable. Note: Write down all of your calculations.
2.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.
3.Recommend whether you believe that this firm should or should not cut its price to increase its market share. Provide support for your recommendation.
4.Assume that all the factors affecting demand in this model remain the same, but that the price has changed. Further assume that the price changes are 100, 200, 300, 400, 500, 600 dollars.
a.Plot the demand curve for the firm.
b.Plot the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.0989P with the same prices.
c.Determine the equilibrium price and quantity.
d.Outline the significant factors that could cause changes in supply and demand for the product. Determine the primary manner in which both the short-term and the long-term changes in market conditions could impact the demand for, and the supply, of the product.
5.Indicate the crucial factors that could cause rightward shifts and leftward shifts of the demand and supply curves.
6.Use at least three (3) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.
Your assignment must follow these formatting requirements:

Assignment 2: Operations Decision

Using the regression results and the other computations from Assignment 1, determine the market
structure in which the low-calorie frozen, microwavable food company operates.
Use the Internet to research two (2) of the leading competitors in the low-calorie frozen, microwavable
food industry, and take note of their pricing strategies, profitability, and their relationships within the
industry (worldwide).
Write a six to eight (6-8) page paper in which you:
1. Outline a plan that will assess the effectiveness of the market structure for the company’s
operations. Note: In Assignment 1, the assumption was that the market structure [or selling
environment] was perfectly competitive and that the equilibrium price was to be determined by
setting QD equal to QS. You are now aware of recent changes in the selling environment that
suggest an imperfectly competitive market where your firm now has substantial market power in
setting its own “optimal” price.
2. Given that business operations have changed from the market structure specified in the original
scenario in Assignment 1, determine two (2) likely factors that might have caused the change.
Predict the primary manner in which this change would likely impact business operations in the
new market environment.
3. Analyze the major short run and long cost functions for the low-calorie, frozen microwaveable
food company given the cost functions below. Suggest substantive ways in which the low-calorie
food company may use this information in order to make decisions in both the short-run and the
long-run.
TC = 160,000,000 + 100Q + 0.0063212Q2
VC = 100Q + 0.0063212Q2
MC= 100 + 0.0126424Q
4. Determine the possible circumstances under which the company should discontinue operations.
Suggest key actions that management should take in order to confront these circumstances.
Provide a rationale for your response. (Hint: Your firm’s price must cover average variable costs
in the short run and average total costs in the long run to continue operations.)
5. Suggest one (1) pricing policy that will enable your low-calorie, frozen microwavable food
company to maximize profits. Provide a rationale for your suggestion.
(Hints:
• In Assignment 1, you determined your firm’s market demand equation. Now you need to
find the inverse demand equation. Having found that, find the Total Revenue function for
your firm (TR is P x Q). From your firm’s Total Revenue function, then find your Marginal
Revenue (MR) function.
• Use the profit maximization rule MR = MC to determine your optimal price and optimal
output level now that you have market power. Compare these values with the values you
generated in Assignment 1. Determine whether your price higher is or lower.)
6. Outline a plan, based on the information provided in the scenario, which the company could use
in order to evaluate its financial performance. Consider all the key drivers of performance, such
as company profit or loss for both the short term and long term, and the fundamental manner in
which each factor influences managerial decisions.

Assignment 3: Long-Term Investment Decisions
Due Week 9 and worth 300 points
Assume that the low-calorie frozen, microwavable food company from Assignments 1 and 2 wants to
expand and has to make some long-term capital budgeting decisions. The company is currently facing
increases in the costs of major ingredients.
Use the Internet and Strayer databases to research government policies and regulation.
Write a six to eight (6-8) page paper in which you:
1. Outline a plan that managers in the low-calorie, frozen microwaveable food company could follow
in anticipation of raising prices when selecting pricing strategies for making their products
response to a change in price less elastic. Provide a rationale for your response.
2. Examine the major effects that government policies have on production and employment. Predict
the potential effects that government policies could have on your company.
3. Determine whether or not government regulation to ensure fairness in the low-calorie, frozen
microwavable food industry is needed. Cite the major reasons for government involvement in a
market economy. Provide two (2) examples of government involvement in a similar market
economy to support your response.
4. Examine the major complexities that would arise under expansion via capital projects. Propose
key actions that the company could take in order to prevent or address these complexities.
5. Suggest the substantive manner in which the company could create a convergence between the
interests of stockholders and managers. Indicate the most likely impact to profitability of such a
convergence. Provide two (2) examples of instances that support your response.
6. Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not
qualify as an academic resource

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