Term Paper

On
Managerial Economics
The Assignment paper is prepared for Managerial Economics course,

Fall Semester, 2014

Submitted To:
Md. Abul Kasham
Associate Professor
Department of Management Information Systems
University of Dhaka

Submitted by:
A. B. M. Lutful Kabir
ID: 61222-15-073
15th Batch

Department of MIS
University of Dhaka

Date: December 28, 14

 Problem

Sara Lee Corporation generates experimental data in test stores where the effect of an
NFL-licensed Carolina Panthers logo on Champion sweatshirt sales can be carefully
monitored. Demand forecasts usually rely on time-series data. In contrast, cross-
section data appear in the following table. Soft drink consumption in cans per capita
per year is related to six-pack price, income per capita and mean temperature across
the 48 contiguous states in the United States.

1. Estimate the demand for soft drinks using a multiple regression program.
2. Interpret the coefficients and calculate the price elasticity of soft drink
demand.

X1(6-Pack X2(Income/Capita X3(Mean

Region Y(cans/capita/year)
price) ) Temp.)
Alabama 200 2.19 11.7 66
Arizona 150 1.99 15.3 62
Arkansas 237 1.93 9.9 63
California 135 2.59 22.5 56
Colorado 121 2.29 17.1 52
Connecticut 118 2.49 24.3 50
Delaware 217 1.99 25.2 52
Florida 242 2.29 16.2 72
Georgia 295 1.89 12.6 64
Idaho 85 2.39 14.4 46
Illinois 114 2.35 21.6 52
Indiana 184 2.19 18 52
Lowa 104 2.21 14.4 50
Kansas 143 2.17 15.3 56
Kentucky 230 2.05 11.7 56
Louisiana 269 1.97 13.5 69
Maine 111 2.19 14.4 41
Maryland 217 2.11 18.9 54
Massachusetts 114 2.29 19.8 47
Michigan 108 2.25 18.9 47
Minnesota 108 2.31 16.2 41
Mississippi 243 1.98 9 65
Missouri 203 1.94 17.1 57
Montana 77 2.31 17.1 44
Nebraska 97 2.28 14.4 49
Nevada 166 2.19 21.6 48
New
2.27 16.2 35
Hampshire 177
New Jersey 143 2.31 21.6 54

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 New Mexico 157 2.17 13.5 56
New York 111 2.43 22.5 48
North Carolina 330 1.89 11.7 59
North Dakota 63 2.33 12.6 39
Ohio 165 2.21 19.8 51
Okalahoma 184 2.19 14.4 82
Oregon 68 2.25 17.1 51
Pennsylvania 121 2.31 18 50
Rhode Island 138 2.23 18 50
South Carolina 237 1.93 10.8 65
South Dakota 95 2.34 11.7 45
Tennessee 236 2.19 11.7 60
Texas 222 2.08 15.3 69
Utah 100 2.37 14.4 50
Vermont 64 2.36 14.4 44
Virginia 270 2.04 14.4 58
Washington 77 2.19 18 49
West Virginia 144 2.11 13.5 55
Wisconsin 97 2.38 17.1 46
Wyoming 102 2.31 17.1 46

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 Solution

1. Estimation of Demand Function

Let assume, the demand function,

Y=a+m1X1+m2X2+m3X3
Where,
X1=6-pack price
X2=Income/Capita
X3=Mean Temp.

In Microsoft Excel the LINEST formula is used,

From this we get the values,

m1=-0.167, m2=2.924, m3=1.404 and a=73.49

Putting these values in the above equation we get,

Y=73.49-0.167X1+2.924X2+1.404X3
This is the required demand function of soft drinks.

2. Interpretation of the coefficients

The value m1=-0.167 means that the increase of $1.00 price will reduce the sales by
0.167 cans/capita/year.

The value m2=2.924 means that the increase of $1.00 income/capita will increase the
sales by 2.924 cans/capita/year.

The value m3=1.404 means that the increase of 1° mean temperature will increase the
sales by 1.404 cans/capita/year.

Price elasticity of soft drinks calculation

Price Elasticty, Ep =-0.167

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