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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)?

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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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