Demand estimation for brand-name consumer products is made difficult by the fact that managers must rely on proprietary data. There are no publicly available data that can be used to estimate demand elasticities for brand-name orange juice, frozen entrees, pies, and the like—and with good reason. Competitors would be delighted to know profit margins across a broad array of competing products so that advertising, pricing policy, and product development strategy could all be targeted for maximum benefit. Product demand information is valuable and jealously guarded.

            To see the process that might be undertaken to develop a better understanding of product demand conditions, consider the hypothetical example of Mrs. Smyth’s Inc., a Chicago=based food company. In early 2021, Mrs. Smyth’s initiated an empirical estimation of demand for its gourmet frozen fruit pies.

            The firm is formulating pricing and promotional plans for the coming year, and management is interested in learning how pricing and promotional decisions might affect sales. Mrs. Smyth’s has been marketing frozen fruit pies for several years, and its market research development has collected data thirty important marketing areas, including sales quantity, the retail price charged for the pies, local advertising and promotional expenditures, and the price charged by a major competing brand of frozen pies. Statistical data published by the U.S. Census Bureau on household disposable income of each region were available for analysis.

a. Interpret the coefficient of each explanatory variable.

b. Find elasticity of each explanatory variable

c. Interpret each elasticity of explanatory variable.

d. If the “marginal cost” of frozen pie is $95, what is the optimal price.