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Soft Drink Demand Estimation

In: Business and Management

Submitted By mrzemn
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MANAGERIAL ECONOMICS

You have been appointed as a member of a consultation team who is working on this very important assignment for a soft drink company. The main task is to evaluate factors affecting the soft drink consumption. Therefore, you should revise the knowledge of demand analysis and carry out an investigation on the possible determinants of the demand for the product. The consultant should also describe the methodology of a multiple linear regression and its purpose in estimating a demand function.

The consultant should then run a multiple linear regression in linear and multiplicative forms based on the data provided by the company and report on the estimated result. They will have to evaluate the estimated demand equations both in linear and multiplicative forms, select the one, which can best describe the consumption. The consultant will also have to obtain the estimated values of the various demand elasticities from the estimated coefficients of the regression and explain the meaning of each elasticity. From the demand equation, the consultant should recommend how to improve the soft drink consumption.

The following table provides data on soft drink consumption in can per capita as it relates to prices, income per capita, and mean temperature across regions.

a. Estimate the demand for soft drinks using a multiple linear regression in both linear and multiplicative forms.

Linear form : Y = a + bP + cI + dT Multiplicative form : Y = a • Pb • Ic • Td : log (Y) = A + b log (P) + c log (I) + d log (T) Where, Y = Annual cans per capita P = Price per six-pack I = Income per capita T = Mean temp.

Linear form (R2=0.7201) Y = 422.250 + (-218.590) P + 1.077 I + 3.723 T

Multiplicative form (R2=0.6793) log (Y) = 0.762 + (-2.993) log (P) + 0.198 log…...

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