1. Assume you have been hired by Purina to estimate the demand of their new line of dog food to be sold in St. Louis grocery stores. Based on your regression model, you have come up with the following estimated monthly demand: (4 points)

Qd = - 5200 - 42P + 20 PX + 5.2 I+ 0.2 A + 0.25 D

• Qd = quantity sold by month
• P = price of the product= 500 (in cents)
• Px = price of a leading competitor 's product = 600 (in cents)
• I = per capita income = 5500 (in dollars)
• A = monthly advertizing expenditures = 10000 (in dollars)
• D = average number of dogs that were adopted from local shelters each month = 5000
  1. Given this information, calculate the (own) price elasticity and the income elasticity for this good.
  2. Given the above information, how concerned should your company be about the impact of an economic recession on its sales? Explain
  3. Do you think that this firm should increase, decrease, or keep price the same? Explain.