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6. Case study. The business objective facing the marketing manager of a leading brand wine is to calculate the elasticities and analyze the demand for
6. Case study. The business objective facing the marketing manager of a leading brand wine is to calculate the elasticities and analyze the demand for the wine. Please use the following demand equation and write your analysis: Sales (Quantity demanded) = 100 -15 Price+0.1Advertising+ 10PriceX+0.15Income Where: Price: the price per bottle, as measured in dollars; Advertising: the monthly budget for advertising, measured in dollars; PriceX: the price of another brand wine, X, measured in dollars; Income: per capita income of the standard metropolitan statistical area (SMSA) in which the supermarkets are located, measured in dollars. Sales: numbers of bottles sold in a month. 1) Please use the following numbers to compute elasticities (don't calculate elasticities of Advertising): Price ($) =55 Advertising spending = $1000 Price X($) =45 Income ($) =5000 2) Answer the following questions based on the elasticities. a. Price elasticity of demand: will increase in price lead to increase in revenue? b. Cross elasticity: are the leading brand wine and another brand complements or substitutions? Should the manager be concerned with another brand's pricing decision? c. Income elasticity: is the wind inferior, necessity or luxury good? How will economic recession or boom affect the sales
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