ECO 704 assignment # 01 Discussion

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ECO 704 assignment # 01 Discussion

Postby Muhammad Amin Ahmad » Wed Nov 27, 2013 7:56 pm






Case 1:

Olay’s Cosmetics, Inc., offers a line of cosmetics and perfume products marketed through leading department stores. Product manager John Henry recently raised the suggested retail price on a popular line of mascara from Rs.12 to Rs.15 following increases in the costs of labor and materials. Unfortunately, sales dropped sharply from 17200 to 10000 units per month. In an effort to regain lost sales, manager hired a consultant. The consultant found after investigation that Olay’s competitors decreased the price of popular line of mascara similar to that sold by Olay’s from Rs.12 to Rs.10. Consultant suggested that Olay should run a coupon promotion featuring Rs.5 off the new regular price. Coupon printing and distribution costs totaled Rs.600 per month and represented a substantial increase over the typical advertising budget of Rs.3, 450 per month. Despite these added costs, the promotion was judged to be a success, as it proved to be highly popular with consumers. In the period prior to expiration, coupons were used on 40% of all purchases and monthly sales rose to 16,000 units.

A. Calculate the arc price elasticity implied by the initial response to the Olay’s price increase.

B. Calculate the effective price reduction resulting from the coupon promotion.

C. In light of the price reductions associated with the coupon promotion and assuming no change in the price elasticity of demand, calculate Olay’s arc advertising elasticity.

D. Assuming the same arc price elasticity calculated in part A, determine the further price reduction necessary for Olay to fully recover lost sales (i.e., regain a volume of 172, 00).

(Marks: 2.5+2.5+5+5)

Case 2:

Orient Group of Companies has been on the forefront of design and development, by coming up with new products and increasing presence in all its featured markets. Established in Lahore in1957, today the Orient Group of Companies is one of the largest consumer goods companies of Pakistan. Orients products have proven themselves in functional performance parameters set by international industry experts. With the vision to become leaders of the industry, Orient strives to make each of its products, with careful R&D and intensive innovation. This success has emerged as a result of dynamic leadership and improvement of profitability. It is managed by well qualified, experienced, capable and dedicated professionals. Today's business environment is volatile and unpredictable. The best way to predict the future is to create it. The strategic planning, effective implementation and transparent evaluation are made before projecting new targets. Comprehensive reports both in units and values of the products are compiled so that accurate forecast and achievable results may be obtained. If for this purpose, company gathered following data about yearly sales and its advertisement expenditures:

Years 2001 200 200 200 200 200 200 200 200 201
2 3 4 5 6 7 8 9 0
Yt 55 50 52 56 58 62 64 68 66 70
Xt 20 19 21 22 21 22 23 23 24 25

Where Yt and Xt are annual sales and advertisement expenditures, both in millions, respectively.

A. Estimate OLS equation for Orient Group of Companies.

B. Find out the significance level of advertisement for the company.

C. Calculate and interpret following significance tests:

a) Confidence intervals

b) Coefficient of determination

c) Coefficient of correlation

d) Adjusted R2

e) Analysis of Variance

(Marks: 6+2.5+6.5)
Muhammad Amin Ahmad
Posts: 4
Joined: Thu Nov 14, 2013 10:10 am

Re: ECO 704 assignment # 01 Discussion

Postby mb130400025 » Sat Nov 30, 2013 8:44 pm


Posts: 3
Joined: Fri Nov 15, 2013 5:41 pm


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