Question

You are the manager of Coca-Cola and are facing the effect of a research (published in 2004) that reports that consuming high fructose corn syrup (HFCS) is associated with promoting obesity. Consider the number of news reports and the number of other research papers on this topic that have been published since 2004. This issue is relevant to you because HFCS is the sweetener used in soft drink manufacturing. Then, you are to:

1. Define the own price elasticity of demand.

2. Write out a log-linear demand equation for Coca-Cola that includes the appropriate demand shifters. Based on economic theory, attach the appropriate sign to the coefficient on each right hand side variable.

3. What is the effect of population on consumption of Coca-Cola?  

4. Given the number of news reports and other research papers that focus on the positive relation between HFCS and obesity, explain how this is represented by the demand equation for Coca-Cola.

5. Use economic theory to explain the meaning of the coefficient on each explanatory variable.

6. What would you do to offset the effect of the HFCS-obesity research on the demand for Coca-Cola? Based on economic theory explain your decision. Explain if your decision is working.

7. Would you increase or decrease price to boost Coke sales? Based on economic theory, explain your choice.

8. Based on economic theory, explain how Coke’s advertising would affect the demand for Pepsi.

9. Assume that consumers are worried about the positive relation between consumption of HFCS and obesity, so consumers may increase bottled water consumption. Explain the effect of this on the demand for Coca-Cola. Is the cross price elasticity of demand between Coca-Cola and bottled water negative of positive, explain?

10. Based on economic theory, explain why you would spend a lot of money on advertising Coca-Cola at the super bowl 2019.

Answer 1