Managerial Economics: Demand, Elasticity, and Sales at CFC Analysis

This assignment provides a comprehensive analysis of Corn Flakes Corporation's (CFC) sales using managerial economics principles. It begins by determining the current sales volume based on given values for price, income, competitor's price, milk price, and advertising expenditure. The assignment then calculates various elasticities, including own price elasticity, income elasticity, cross-price elasticity, elasticity with respect to milk price, and advertising elasticity. Furthermore, it assesses the impact of changes in price, income, competitor's price, and advertising expense on the new level of sales. Finally, the assignment determines the required change in advertising expenditure to achieve a 30 percent increase in sales, demonstrating the practical application of elasticity concepts in managerial decision-making. Desklib offers a wealth of similar solved assignments and study resources for students.

Running head: MANAGERIAL ECONOMICS
Managerial Economics
Name of the Student
Name of the University
Course ID

1MANAGERIAL ECONOMICS
Table of Contents
Answer a..........................................................................................................................................2
Answer b..........................................................................................................................................2
Answer c..........................................................................................................................................4
Answer d..........................................................................................................................................5

2MANAGERIAL ECONOMICS
Answer a
The demand of corn flakes sold by corn flakes corporation (CFC) is given as
Q=1.0−2.0 PX +1.5 I + 0.8 PY −3.0 Pm+ 1.0 AGiven that,
P = $2, I=$4, Py =$2.50, Pm= $1, and A=$2, sales of CFC cornflakes this year can be
determined as
Q=1.0−2.0 PX +1.5 I + 0.8 PY −3.0 Pm−1.0 A
¿ 1.0− ( 2.0× 2 ) + ( 1.5× 4 ) + ( 0.8 ×2.50 )− ( 3.0 ×1 ) + ( 1.0 ×2 )
¿ 1.0−4.0+6.0+2−3+2
¿ 4 million
Answer b
Estimation of elasticity of sales
Own Price elasticity
EP= Percentage chage∈demand
Percentage change∈own price
¿ dQ
d PX
× PX
Q
¿−2× 2
4
¿−1
Income elasticity

3MANAGERIAL ECONOMICS
EI= Percentage chage ∈demand
Percentage change∈income
¿ dQ
dI × I
Q
¿ 1.5 × 4
4
¿ 1.5 ×1
¿ 1.5
Cross price elasticity
Elasticity with respect to competitor’s price
EPy= Percentage chage∈demand
Percentage change∈price of comptetive brand
¿ dQ
d PY
× PY
Q
¿ 0.8 × 2.5
4
¿ 0.8 ×0.625
¿ 0.5
Elasticity with respect to milk price
EPm= Percentage chage∈demand
Percentage change∈milk price
¿ dQ
d Pm
× Pm
Q =−3 × 1
4

4MANAGERIAL ECONOMICS
¿−3 ×0.25
¿−0.75
Advertisement elasticity
EA = Percentage chage∈demand
Percentage change∈advetisement expenditure
¿ dQ
dA × A
Q
¿ 1 ×0.5
¿ 0.5
Answer c
New Price ( PX )=$ 2− (2∗0.10 )
¿ $ 2−0.2
¿ $ 1.8
New income ( I ) =$ 4+ ( 4 × 0.05 )
¿ $ 4 +0.2
¿ $ 4.2
New competito r' s price ( PY ) =$ 2.50− ( 2.50∗0.1 )
¿ $ 2.50−0.25
¿ $ 2.25

5MANAGERIAL ECONOMICS
New advertising expense ( A )=$ 2+ ( $ 2× 0.20 )
¿ $ 2+0.4
¿ $ 2.4
Price of milk (Pm) remained the same
New level of sales (Q)=1.0−2.0 PX + 1.5 I +0.8 PY −3.0 Pm−1.0 A
¿ 1.0− ( 2.0× 1.8 ) + ( 1.5 ×4.2 )+ ( 0.8× 2.25 )− ( 3.0 ×1 )+ (1.0 × 2.4 )
¿ 1.0−3.6+6.3+1.8−3+2.4
¿ 4.9 million
Answer d
The elasticity of sales with respect to advertising is obtained as 0.5
Given that CFC wants to change sales by 30 percent, the required change in advertising can be
determined as
Percentage change∈sales
Percentage change∈advertsing expense =0.5
¿ , 30
Percentage change∈advertising expenditure =0.5
¿ , Percentage change∈advertisement expense= 30
0.5
¿ , Percentage change∈ advertisement expense=60

6MANAGERIAL ECONOMICS
CFC should change advertising 60 percentage if it wants sales to be 30 percent higher
than this year.