Point elasticities and power form

Pritti Sprays is a manufacturer of cosmetic products. Its management is currently engaged in an analysis of the lipstic
firm, examining the future demand for them. Market research indicates that advertising expenditure, price and aver
major variables affecting the demand for the lipsticks. The advertising elasticity for demand is estimated to be 1.5, th
and the income elasticity 1.8. In addition, the following data are available.

Year Sales (Units) Advertising Expenditure Price Income

2001 2369 £21,000.00 £6.50 £25,000.00
2002 2721 £21,000.00 £6.50 £27,000.00
2003 3581 £24,000.00 £6.80 £29,000.00

a. Estimate sales for 2002 and 2003.

Year 2001
a= 8.92E-11
Year 2002
Q= 2721 Units
Year 2003
Q= 3581 Units

b. A competitor plans on reducing its price from £6.90 to £6.40 in 2003; assuming the CED is 1.5, how much would P
advertising to achieve the same rate of growth of sales as from 2001 to 2002?
Year Price competitor CED
2002 £6.90 1.5
2003 £6.40

Year 2001-2002
Growth of sales 14.86%

Year 2002
a= 4.92E-12

Year 2003
Q= 3125.29 Sales required (units)
A= £23,628.29 Advertising
 ed in an analysis of the lipsticks produced by the
g expenditure, price and average income are three
mand is estimated to be 1.5, the price elasticity -1.2

Elasticity
P= -1.2
A= 1.5
Y= 1.8

ED is 1.5, how much would Pritti have to spend on

Case Study 3.4: Oil Production
OPEC currently produces about 38 per cent of the world output of oil. Assuming the short-term price elasticity of de
estimate the effect of the output cut on the current price, stating any assumptions in your calculations.
e short-term price elasticity of demand is -0.28,
n your calculations.