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Managerial Economics: Direct Methods Used for Demand Estimation

1. Define and discuss the direct methods used for demand estimation
2. Describe and discuss the relationships of the following: production functions, technical and economic efficiency, variable and fixed imputes of production, and fixed and variable proportions
3. Discuss the advantages and disadvantages of Short-Run and Long-Run production periods and costs.

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1. Define and discuss the direct methods used for demand estimation.

Demand estimation generally involves attempting to forecast the potential demand for a product or service. It is used to statistically calculate the various functions that can be associated with supplying the product or service to the marketplace. There are two main direct methods used for demand estimation. The first is consumer interviews, which is a strategy of deriving information directly face-to-face from consumers in order to understand trends and fashions. The weakness associated with this strategy is that there can be significant interviewer bias, as well as a sample and response bias.

The second method is through direct experimentation and market study. What this involves is testing for price elasticity while holding all other areas of the product or service constant. McDonalds is a good example of an organization that utilizes such an approach. They invite participants to try new menu items under lab conditions, where actual buying conditions are ...

Solution Summary

The solution discusses the direct methods used for demand estimation in managerial economics.

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