Subject: ECO 550
Professor Name: DR. Yasmeen
Student Name: Sayed Rohullah
Week 3: Check your understanding
1. The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned ride snowmobiles. The model specifies that the 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 the past data, the best estimate of this relationship is S= K *YZ/P
Where k has been estimated (with the pst data) to equal 100.
If Y=$11,000, Z= $1,200, and P=$20,000
a. What value would you predict for S?
The given function is S=K*YZ/P
k=100 Y=$11,000 ...view middle of the document...
6. The economic analysis division of Mapco Enterprises has 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 the Mapco trimmer Ps = price of its competitor's Surefire trimmer
In 2010, 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 2010 under these conditions?
b. If its competitor cuts the price of the Surefire trimmer to $50, what effect will this 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
Qd-2006= 18,000+6000-17,500+4950=11450. Ps=$50,Qd= 18,000+6000-17500+4500=11,000. 15,000-15000x0.30=10,500 Qd=18,000+4200-17500+4950=9,650. 350 means dQd/dPm, or if Pm increases 1 unit,Qd will decline 350 units. 90 means if Ps increases 1 unit,Qd will increase 90 unit.
Mapco and Surefire services are substitutes.
9. Savings-Mart (a chain of discount department stores) sells patio and lawn furniture. Sales are seasonal, with higher sales during the spring and summer quarters and lower sales during the fall and winter quarters. The company developed the following quarterly sales forecasting model: Yt= 8.25 + 0.125t 2.75D1t + 0.25D2t + 3.50D3t Where Yt = predicted sales ($ million) in quarter t 8.25 = quarterly sales ($ million) when t = 0 t = time period (quarter) where the fourth quarter of 2002 = 0 First quarter of 2003 = 1, second quarter of 2003 = 2D1t = 1 for first-quarter observations 0 otherwise D2t = 1 for second quarter observations 0 otherwise D3t = 1 for third-quarter observations 0 otherwise a). Forecast Savings-Mart's sales of patio and lawn furniture for each quarter of 2010.
y= 8.25+0.125(29)-2.75 y= 11.875-2.75 y=9.125 Million
y=8.25+0.125(29)-+0.25 y=11.875+0.25 y=12.125 Million
y=8.25+0.125(29)+3.50 y=11.875+3.50 y=15.325 Million
Chapter 6: check your understanding
Problem 2: If the U.S. dollar were to appreciate substantially, what steps could a domestic manufacturer such as Cummins Engine Co. of Columbus, Indiana take in advance to reduce the effect of the exchange rate fluctuation on company profitability?
. There are several possible ways in which a company can hedge themselves against currency movements. They could conduct all sales in US dollars. This would eliminate the risk of currency movements by pushing the risk onto their customers. This option could have a negative impact in the form of lost sales from customers unwilling to purchase in US dollars. They could hedge themselves with either future or forward contacts. To do this they
will need to calculate how much they will lose if the dollar appreciates and get into contacts that will match those losses with equal gains in...