Demand Estimation, Elasticity, and Forecasting of LG Air Conditioners: A Case Study of MASHALLAH Electronics
14 Pages Posted: 2 Jun 2011
Date Written: May 30, 2011
Electronic market in Pakistan now a days deal with an uncertain and varying business environment due to incessant change in technology and economic conditions. The objective of study is to calculate Elasticities, demand estimation, and forecasted demand of L.G air conditioner. Time series data for the period of 2002 to 2003 on quarterly basis is taken from MASHALLAH electronics. Price of L.G, price of Mitsubishi, price of electricity, advertisement expenditures, and total sale of firm use as explanatory variables. For Estimation of demand, linear demand model is specified by using independent variables and then multiple regression technique is applied on model and results show that price of L.G and price of Mitsubishi is negative related with demand and price of electricity, advertisement expenditures and total sale are positive related with demand. Double log demand model is specified for calculation of Elasticities and regression analysis reveals that price elasticity of demand is -2.82, cross price elasticity of demand w.r.t price of Mitsubishi is -0.02, cross price elasticity of demand w.r.t price of Electricity is 1.08, and advertisement elasticity of demand is 0.07, and total sale elasticity of demand is 0.23. Forecasted values of independent variables for 1st quartet of 2011 is calculated at two different weights 0.5 and 0.7 by using exponential smoothing method and selected those values whose root mean square error is low putting the value in estimated demand equation and find out that forecasted demand of LG should be of 64 units in the 1st quarter of 2011.
Keywords: demand estimation and forecasting, 2002 1st quarter – 2010 4th quarter, MASHALLAH electronics, econometric forecasting, prices of LG, prices of electricity
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