Applied Economics – Demand Forecasting & Cost Analysis Assignment
SMS Pte Ltd is a Singapore-based firm selling premium ceramic mugs. The firm wants you to help them understand demand, forecast future prices, estimate cost behavior, and evaluate output decisions. In the Excel template, you are provided with quarterly data covering 2018 to 2025.
- (1) Estimate the linear demand function using all the variables given in the dataset. Present the regression equation and results.
(2) Given that Income=$60,000, Price of related good=$50 and Population=1,000,000, express the demand equation as a function of price. Round all coefficients to the nearest whole number. - (1) Estimate a price forecasting model that incorporates both a time trend and seasonal effects. Discuss whether there is a clear time trend and seasonal variation in price.
(2) Using your estimated model, forecast the price for the next period, 2026 Q1.
(3) Evaluate the reliability of your forecast. In your answer, refer to model fit, statistical significance, and any potential limitations. - Estimate the real average variable cost function. You must estimate the specific functional form discussed in class for the average cost function. Round all coefficients to two decimal places (2 d.p.).
- (1) Estimate the price elasticity of demand and cross-price elasticity, assuming constant elasticity.
(2) Using your estimated elasticities, discuss which market structure is consistent with your result. - Determine the profit-maximizing level of output for this firm in 2026 Q1, assuming it operates in the market structure you specified in your answer to the previous question. To find the profit-maximizing level of output, you can use the Goal Seek function in Excel. A brief guide for using Goal Seek to find the output level is provided in the next page.
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Expert Answers on Above Economics Assignment
Linear Demand Function
Estimation – Qd=β0+β1P+β2Y+β3Pr+β4Pop+ε
In the above estimation, the price is expected negative while the income is expected positive. The population is positive and the related good price is indicated by the sign.
Demand as a function of price
The income given is 60000 and the related price is 50 and the population is 1000000. The result is Qd=a+bP
Price forecasting model
The model is given as – Pt=α+βt+γ1Q1+γ2Q2+γ3Q3+ε
Forecast for Q1 of 2026
Plug – next time period (t value) and Q1 dummy = 1
Reliability
With R2 being higher is considered a better fit and p value less than 0.05 is considered as significant. The major limitations are the small data set, structural changes, and no consideration for external shocks.
| This model answer is reviewed by Dr Enze Huang, familiar with international economics concepts and theories. Disclaimer: This answer is a model for study and reference purposes only. Please do not submit it as your own work. |
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Economics assignment involving the estimation of linear demand function, a price forecasting model or calculating the price elasticity of demand requires core economics expertise. If you need detailed answers to the above economics questions, visit our economics assignment help online page to get support from a professional economics expert.
