MGE302 Individual Assignment: Demand Analysis

Submission Instructions

• Due date: 11:59 pm, Sunday, 12 April 2026
• You must enter the answers in the Excel template provided.
• Show all workings clearly in the Excel template (No workings, no points).

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. (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.
2. (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.
3. 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.).
4. (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.
5. 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.

Excel Goal Seek Guide

Finding the Profit-Maximizing Output

Objective: Use Excel Goal Seek to solve for the quantity Q that makes MR = MC. In Excel, this is done by setting MR − MC = 0 and asking Excel to change the Q cell until the equation equals zero.

Step 1. Set up the worksheet

Create four columns in Excel: Q (Quantity), MR, MC, and MR − MC. Enter an initial guess for Q in cell A2 (you can also leave it as blank), then enter the MR and MC formulas in the adjacent cells. In the final column, calculate MR − MC.

Step 2. Open Goal Seek

From the Excel ribbon, go to Data → What-If Analysis → Goal Seek. A small dialog box will appear.

Step 3. Fill in the Goal Seek dialog

• Set cell: enter the cell that contains MR − MC. In the example, this is D2.
• To value: enter 0, because you want Excel to solve MR − MC = 0.
• By changing cell: enter the cell that contains Q. In the example, this is A2.

Step 4. Click OK and read the solution

Excel will adjust the value in the Q cell until the formula in the MR − MC cell becomes zero (or as close to zero as possible). The final value in the Q cell is the profit-maximizing output.