University of Central Punjab

UCP Business School

Group Assignment 1

Program: MBA

Last date of submission: 28-11-2017

Solve ALL Questions

Question 1: Demand Estimation

Choose a product of your interest to determine the most important determinants of its demand.
You need to develop this into a generic demand function of the form

Qx = a0 + a1 Px + a2 I + a3 Py

Explain the;

i- Significance of each of the selected variable (include industry specific variables)

ii- Sign of each of the coefficients (expected/estimated use some secondary data evidence to
support this)

iii- Impact/size of each of the coefficient (expected/estimated use some secondary data evidence
to support this)

Question 2

Rahim operates an automobile detailing business in a mid-sized town in Punjab. An automobile

detailer restores a car to the level of cleanliness and perfection that it had when it was new. His
fastidious nature, attention to detail, and ability to effectively manage employees has helped to
make his business profitable, but he believes that more information about the market would
allow him to operate more efficiently. He uses regression analysis to estimate the demand
function for his business and gets the following result:

Qx = 235 - 3Px + 40A - 20U + 8Pw

The number of detailing jobs he gets per month (Qx) depends on the price he charges per job
(Px), his monthly advertising expenditures (A) measured in Rs. 1,000s, the regional percentage
unemployment rate (U), and the average price charged by local car wash businesses (P w) for a
standard wash and wax.
(a)Is automobile detailing a normal good or an inferior good? How can you tell?

(b) Is a wash and wax at the local car wash a complement or a substitute for automobile
detailing? How can you tell?

(c) Rahim is currently charging Rs 65 per detailing job and spending Rs 3,500 per month on
advertising. The regional unemployment rate is 7.5% and the average price of a wash and wax at
a local car wash is Rs 15. How many detailing jobs per month can Rahim expect under these
conditions?

(d) Derive the demand curve for detailing jobs under current conditions. Calculate the values
needed to fill in the demand schedule below and then plot the schedule on the graph provided.

Px: 105 95 85 75 65 55 45 35 25 15

Qx:

(e) Calculate the Advertising and price elasticity of demand under conditions described in part c.
Is the demand elastic or inelastic? Also calculate the total and marginal revenue.

Question 3

The research department of Corn Flake Corp. (CFC) estimated the following demand using the
regression analysis:

Qx = 1.0 2.0 Px + 1.5 I + 0.8 Py 0.3 Pm + 1.0 A

Qx = Sales of CFC, in millions of 10-ounce boxes per year

Px = Price in dollars per 10-ounce box of CFC cornflake

I = Personal disposable income in trillions of dollars per year

Py = Prce of competitor brand in dollars for a 10-ounce box of cornflakes

Pm = Price of milk in dollars per quarter

A = Advertising expenditure of CFC in hundreds of thousands of dollars per year

This year Px = $2, I = $4, Py = $2.50, Pm = $ 1 and A = $ 2

(a) Calculate the demand for CFC cornflakes this year.

(b) Calculate the elasticity of demand with respect to each variable in the demand function.

(c) Estimate the demand for next year if CFC reduced its price by 10%and increased Advertising
expenditure by 20%, I increase by 5%, Py reduced by 10% and Pm remains unchanged.
Requirement:
The assignment should be typed in Microsoft Word. Handwritten assignments will not be
accepted.
The title page should include the name of all group members, title of the assignment and
selected countries.
All the graphs produced with the help of the Microsoft Excel should be copied into word
with proper formatting and labels.
There is a zero tolerance policy for the plagiarism. If any external help is taken, the
source should be given its full credit. If any case of plagiarism is found, it would be dealt
quite strictly, the assignment will be given 0 marks.
This is a group assignment. You are required to work in the group of 4 or 5. Each group
should submit only one assignment.

The deadline for the submission is 28-11-2017. The hard copy of the assignment is due at the
start of the class or through the Class Representative. Late submission will be penalized in the
form of marks reduction. In addition to the hard copy, each group will have to submit the soft
copy too. You should mail the soft copy of the assignment before coming to class on aforesaid
assignment submission date on the e-mail address, rehman.khan@ucp.edu.pk.