Question The maker of a leading brand of low-calorie microwavable food estimated the following demand equation for its product using data from 26 supermarkets around the country for the month of April:

Q =-5,200 - 42P + 20P_X + 5.2l + 0.20A + 0.25M

(2.01)(17.5)(6.2)(2.5)(0.09)(0.21)

R² = 0.55n = 26F = 4.88*Figures in parentheses are t-statistics

Assume the following values for the independent variables:

Q = Quantity sold per month

P = Price of the product = PKR 500

P_X = Price of leading competitor's product = PKR 600

I = Per capita income of the standard metropolitan statistical area (SMSA) in

which the supermarket is located = PKR 5,500

A = Monthly advertising expenditure = PKR 10,000

M = Number of microwave ovens sold in the SMSA in which the supermarket is located = 5,000

Using this information, answer the following questions:

(i)Highlight your learning from above demand equation results.

(ii)How concerned do you think this company would be about the impact of a recession on its sales? Explain.

(iii)Do you think that this firm should cut its price to increase its market share? Explain.

What proportion of the variation in sales is explained by the independent variables in the equations? How confident are you about this answer? Explain.