Bundle: Managerial Economics: Applications, Strategies And Tactics, 14th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
Bundle: Managerial Economics: Applications, Strategies And Tactics, 14th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
14th Edition
ISBN: 9781337198196
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 5, Problem 1E

The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned-ride snowmobiles. The model specifies that sales S vary jointly with disposable personal income Y and the population between ages 15 and 40, Z, and inversely with the price of the snowmobiles P. Based on past data, the best estimate of this relationship is S = k Y Z P

where k has been estimated (with past data) to equal 100.

  1. If Y = $ 11 , 000 , Z = $ 1 , 200 , and P = $ 20 , 000 , what value would you predict for S?
  2. What happens if P is reduced to $17,500?
  3. How would you go about developing a value for k?
  4. What are the potential weaknesses of this model?

a)

Expert Solution
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To determine

To calculate: The value of S (sales).

Answer to Problem 1E

The value of S is $66000

Explanation of Solution

S = Sales

Y = Disposable personal income

Z = population between the age group

P = inverse price

K = estimated data

  S=kYZPS=100×11000×120020000S=66,000

b)

Expert Solution
Check Mark
To determine

To ascertain: The effect of decrease in the value of P.

Answer to Problem 1E

The sales will increase by 75429 − 66000 = $9429

Explanation of Solution

  S=kYZPS=100×11000×120017500S=75428.57S=75429(roundedoff)

The sales will increase by 75429 − 66000 = $9429

c)

Expert Solution
Check Mark
To determine

To find: The process to develop the value for K.

Explanation of Solution

The past data of S, Y, Z and P is required where,

S = Sales

Y = Disposable personal income

Z = population between the age group

P = inverse price

K = estimated data

to formulate the value of k. However, this data will be utilized by various techniques like regression analysis in order to find the value of k.

d)

Expert Solution
Check Mark
To determine

To detect: The potential weakness of the model is to be determined.

Explanation of Solution

The given model depends on three constituents, Y, Z, and P. Therefore, any change in these consequents will change the value of sales. Moreover, it will be difficult to find the consequent that is responsible to change in sales(S).

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