Low-Calorie Microwavable Foods: Demand Analysis

Demand Analysis of low-calorie microwavable food
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QD = 20,000 - 10P + 1500A + 5PX + 10 I
Since R2 is considerable high, the model explains the demand quite well. Putting the values of P, A, Px and I in the above equation, we get,
Converting all price into dollars, we get,
QD = 20,000 – (10×8000) + (1500×64) + (5×9000) + (10×5000) = 131000
Now, own price elasticity (ep) = × = -10, P = 8000, Q = 131000
Own Price elasticity (ep) = - 10 × = - 0.61 (approx.)
Cross price elasticity (exy) = × = 5, Px = 9000, Q = 131000
Cross price elasticity (exy) = 5 × = 0.34 (approx.)
Income elasticity (eI) = × = 10, I = 5000, Q = 131000
Thus the demand for the low-calorie microwavable food is inelastic in nature. This implies that an increase in the price of the food leads to the fall of the quantity demanded by less than proportionate amount.
Income elasticity of the good calculated is 0.38. This implies that the good selected is normal good.
The cross price elasticity is 0.34. Therefore the two goods are almost substitute goods.
Finally, coming to the advertisement elasticity, we can see that the advertisement elasticity is 0.73. Thus advertisement has an important impact on the sales of the product.

Since price elasticity is less than 1, total revenue will fall if price falls. Moreover the cross price elasticity of the product is almost close to zero. So, if the firm will never lower its price to increase its market