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The following demand function for KMC product was estimated Qda=-1.5Pa+3.0Pb+1.8Y+0.04A+40C Where Qda is annual demand for KMC Products Pa is average annual price for KMC product Pb is average ann... ual price for a competing firm’s product Y is income per capita C is index for credit availability A is annual advertising expenditure Assume that Pa=Kes.2, 666,000; Pb=Kes.2, 100,000 Y=Kes. 40,000; C=1.0; A=Kes 3,500,000 a) Calculate the estimated annual demand and interpret the results of the estimated demand. (2 marks) Qda=-1.5(2,666,000)+3.0(2,100,000)+1.8(40,000)+0.04(3,500,000)+40(1.0) =-3,999,000+6,512,040 = 2513040 b) Compute price elasticity of demand, cross price elasticity and income elasticity of demand for KMC products. Interpret your answers (6 marks) Price elasticity of demand(ED) =%change in Quantity (Q)/%change in price (P) ED price= -1.5 .it is [Show More]
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