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Analyzing estimated demand function

The economic analysis division of Mapco Enterprises estimated the demand function for its line of weed trimmers as

Qd = 18,000 + 0.4N - 350Pm + 90Ps

where N= number of new homes completed in the primary market area
Pm = price of Mapco trimmer
Ps = price of its competitor's Surefire trimmer

In 2006, 15,000 new homes are expected to be completed in the primary market area. Mapco plans to charge $50 for its trimmer. The Surefire trimmer is expected to sell for $55.

a) What sales are forecast for 2006 under these conditions?
b) If its competitor cuts the price of the Surefire trimmer to $50, what effect will it have on Mapco's sales?
c) What effect would a 30-percent reduction in the number of new homes completed have on Mapco's sales (ignore the impact of the price cut of the Surefire trimmer)?

Solution Preview

a) What sales are forecast for 2006 under these conditions?

Qd = 18,000 + 0.4N - 350Pm + 90Ps
Put N=15000, Pm=$50 and Ps=$55
Qd=18000+0.4*15000-350*50+90*55=11450

b) If its competitor cuts ...

Solution Summary

Solution analyzes the impact of changing values of various parameters on estimated sales.

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