Analyzing estimated demand function
The economic analysis division of Mapco Enterprises
estimated the demand function for its line of weed trimmers as
Qd = 18,000 + 0.4N – 350Pm + 90Ps
where N= number of new homes completed in the primary market
area
Pm = price of Mapco trimmer
Ps = price of its competitor’s Surefire trimmer
In 2006, 15,000 new homes are expected to be completed in
the primary market area. Mapco plans to charge $50 for its trimmer. The
Surefire trimmer is expected to sell for $55.
a) What sales are forecast for 2006 under these conditions?
b) If its competitor cuts the price of the Surefire trimmer
to $50, what effect will it have on Mapco’s sales?
c) What effect would a 30-percent reduction in the number of
new homes completed have on Mapco’s sales (ignore the impact of the price cut
of the Surefire trimmer)?
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