January 3, 2018
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January 3, 2018

Finance Basics

Managerial Economics and Quantitative Analysis Question -TSL Jewellery: An Innovator across Generations

TSL Jewellery managers have been approached by a group who were successful in marketing a new product. Sales were available from over thirty stores with data representing quantities sold along with price, advertising, and prices of a closely related product. As the in-house economic analyst, you are being asked to evaluate the data and determine the relative potential of how the product might contribute to future profitability of TSL Jewellery. The data and information provided in the spreadsheet are only applicable to the MEQA section of the exam and must not be applied to other sections of the exam.

Part 1:

Only a conceptual outline is expected in each question of Part 1.

1. Are the elements of the data, including price, advertising, and the price of the related product appropriate for estimating a demand curve for this product? Identify the four or five concepts that should be considered in evaluating the significance of this dataset. Describe the process for determining what the optimum price should be if you are given a cost function in this scenario.

2. Describe other issues that should be considered as you evaluate the potential profitability of this project for TSL Jewellery.

Part 2:

Use the Excel spreadsheet provided with this section to process the dataset and run a regression analysis to evaluate the information. Provide the regression output you generated and respond to the following questions.

1. Evaluate the effectiveness of this data as an estimator of the demand curve for the new product. Make sure you evaluate the statistical significance of each of the parameters as well as the statistical significance of the entire demand equation. Provide your evaluation of the statistical estimation in terms of whether you believe this product should be continued.

2. Given a marginal cost function in the form of MC = 60 + 0.08 Q, the parameters generated through the regression output, and the average values of the original dataset advertising and price of the related price, derive a demand curve for this product. Then determine the optimum price and output for this scenario. Show your work.

3. Complete your analysis with a narrative of your recommendation regarding the appropriateness of proceeding with this product.