DEMAND ESTIMATION, ELASTICITY, AND FORECATING

OF MEDICAM TOOTHPASTE

FURRUKH BASHIR
Part time teacher, Institute of Management Sciences,
Bahauddin Zakariya University, Multan.
Email: furrukh_bashir@yahoo.com
SADAF PERVAIZ
Masters in Business Administrations,
I.M.S, Bahauddin Zakariya University, Multan.
MUHAMMAD MAZHAR
Masters in Business Administrations,
I.M.S, Bahauddin Zakariya University, Multan.
MUHAMMAD SALMAN YOUSAF
Masters in Business Administrations,
I.M.S, Bahauddin Zakariya University, Multan.
QASWAR ABBAS
Masters in Business Administrations,
I.M.S, Bahauddin Zakariya University, Multan.
MUHAMMAD SHAHID AZIZ
Masters in Business Administrations,
I.M.S, Bahauddin Zakariya University, Multan.
SIDRA SADDIQUE
Masters in Business Administrations,
I.M.S, Bahauddin Zakariya University, Multan.

COMPLETED DATE: 30th MAY, 2011

STUDENTS PAPER SERIES - MBA

Year 2011
Managerial Economics
Institute of Management Sciences
Bahauddin Zakariya University, Multan

Electronic copy available at: http://ssrn.com/abstract=1858071

Demand Estimation, Elasticities and Forecasting of

Medicam Toothpaste
Furrukh Bashir, Sadaf Pervaiz, Muhammad Mazhar, M.Shahid Aziz,
Qaswar Abbas, M.Salman Yousaf, Sidra Siddique

Abstract
This paper presents demand estimation, forecasting and elasticities of Medicam toothpaste. In
first section we measure demand estimation by using Linear Model, and then evaluate the
elasticities by using log-log Model. In the last section we estimate the demand of Medicam
for the next Quarter (2009 3rd Quarter). With the help of Demand estimation we check the
future demand for Medicam. We use Time series data from 1st Quarter of 2002 to 2nd
Quarter of 2009 and run multiple regressions using ordinary least square method. We find
that the demand of medicam is negatively affected by price of medicam and price of shield.
The demand of medicam is positively influenced by price of Colgate, advertisement
expenditure and total revenue. Price elasticity of demand is -0.15556, Cross price elasticity
of demand price of colgate is 0.01415, Cross price elasticity of demand price of shield tooth
paste is -0.05593, Advertisement elasticity of demand is 0.075911, and Total Revenue
elasticity of demand is 0.024743. The forecasted value of Demand for 3rd quarter of 2009 is
52295 Units.

Keywords: Demand Estimation, Elasticities and Forecasting of Medicam Toothpaste.

I. Introduction
Demand estimation postulates to determines the demand for specific product in a specific
period and demand forecasting technique is used to predict the future demand with the help
of data collected of previous quarters in demand estimation the firms considering the factors
affecting demand and the firms attempts to estimate the demand for any commodity by
changing price and other determinants of market in the actual marketplace. Regression
analysis is a statistical tool for estimating the quantitative relationship between the economic
variables that we seek to explain the dependent variable such as demand and one or more

Electronic copy available at: http://ssrn.com/abstract=1858071

independent variables or explanatory variables. Demand forecasting is very helpful to predict

the demand of the product. With the help of the demand estimation and demand forecasting
the firms take so many appropriate decisions about their products manufacturing and selling
in different situations that influence the demand.
Demand estimation and forecasting means estimation of the demand for the products
in the forecast period. It is a process of estimating a future event by casting forward past data.
The past data are systematically combined in a predetermined way to obtain the estimate of
future demand. We can make appropriate production scheduling so as to avoid the problem of
over-production & the problem of short- supply. Help the firm to reducing costs of
purchasing raw materials and Determining appropriate price policy.
Demand forecasts are necessary since the basic operations process, moving from the
suppliers' raw materials to finished goods in the customers' hands, takes time. Most firms
cannot simply wait for demand to emerge and then react to it. Instead, they must anticipate
and plan for future demand so that they can react immediately to customer orders as they
occur. In other words, most manufacturers "make to stock" rather than "make to order" they
plan ahead and then deploy inventories of finished goods into field locations.
The first question which arises is what is the difference between demand estimation
and demand forecasting? The answer is that estimation attempts to quantify the links between
the level of demand and the variables which determine it. Forecasting, on the other hand,
attempts to predict the overall level of future demand rather than looking at specific linkages.
For this reason the set of techniques used may differ, although there will be some overlap
between the two. In general, an estimation technique can be used to forecast demand but a
forecasting technique cannot be used to estimate demand. A manager who wishes to know
how high demand is likely to be in two years time might use a forecasting technique. A
manager who wishes to know how the firms pricing policy could be used to generate a given
increase in demand would use an estimation technique. The firm needs to have information
about likely future demand in order to pursue optimal pricing strategy. It can only charge a
price that the market will bear if it is to sell the product. The level of demand for a product
will influence decisions, which the firm will take regarding the non-price factors that form
part of its overall competitive strategy. For example, the level of advertising it carries out will
be determined by the perceived need to stimulate demand for the product. As advertising
expenditure represents an additional cost to the firm, unnecessary spending in this area needs
to e avoided. If the firms expectations about demand are too low it may try to compensate by

spending large sums on advertising, money which in this instance may be, at least, partly
wasted. Alternatively it may decide to redesign the product in response to this, thus incurring
unnecessary additional costs in the form of research and development expenditure.
In the previous unit, demand analysis was introduced as a tool for managerial
decision-making. For example, it was shown that knowledge of price and cross elasticitys
can assist managers in pricing and that income elasticitys provide useful insights into how
demand for a product will respond to different macroeconomic conditions. We assumed that
this elasticitys were known or that the data were already available to allow them to be easily
computed. Unfortunately, this is not usually the case. For many business applications, the
manager who desires information about elasticitys must develop a data set and use statistical
methods to estimate a demand equation from which the elasticitys can then be calculated.
This estimated equation could then, also be used to predict demand for the product, and based
on assumptions about prices, income, and other factors. In this unit the basic techniques of
demand estimation and forecasting are introduced.
Apart from introduction, the rest of the paper is arranged as follows: section II
portrays review of the literature; section III discusses data and methodological issues. Results
are interpreted in section IV. Finally, conclusions and policy implications are given in section
V.

II. Literature Review

In recent years, few studies have been presented both nationally and internationally on
demand estimation and forecasting using time series as well as cross sectional data. Keeping
in view the importance of demand estimation, some empirical evidences from International
Economy are reviewed here.
Marshall H. Medoff. (1997) estimates the demand for abortion in the USA using time
series analysis over the years 1992 and 1982, multiple regression analysis technique used to
estimate the demand for abortion, the dependent variable is abortion rate and independent
or explanatory variables are price of abortion, average income of women, single
women(unmarried), labor force participation rate of women, state Medicaid funding,
percentage of states population which is Catholic, and percentage of states population
which is Western.
Bianco et al. (2009) forecast the electricity consumption in Italy. The first objective of
this paper were to estimate GDP, price & GDP per capita elasticity of domestic & non-

domestic electricity consumption in Italy & the main second objective to forecast the future
growth of these consumptions by using time series data & applying the elasticity estimation
& multiple regression models. For this they used six variables. From which three dependent
variables such as Ytot,t (total), Ydom,t (domestic), Yndom,t (non-domestic) annual
consumption in growth. And three independent variables such as X1, t is the annual GDP in
Euro million, X2, t is the annual population in thousands & X3, t is the annual GDP per capita
in Euro.
Dong et al (1998) conducts this study and the objectives of this study are to estimate
the demand of household and their desire for the two composite commodities beef steaks and
roasts. This study uses cross-sectional data and survey technique, use simple regression
analysis. The independent or explanatory variables are price of beef steaks and roasts with the
help of other explanatory variables such as family size, seasons, and number of employed
people.
This study is conducted by Eiswerth et al (1998) and the objectives of this study are to
estimate the households electricity demand for particular appliances, end-uses and
households usage of electricity in different provinces and seasons monitoring of households
demand. This study use cross-sectional data and survey technique use simple regression
analysis. Independent or explanatory variables are dwelling, households characteristics and
price of electricity with the help of other explanatory variables such as population size,
expenditure pattern and other appliances
In this article author Johnson M. in1976 explain the objective of his article is to
estimating the influence of service quality on transportation demand. The author used the
cross sectional data & Multiple regression model technique. In this multiple regression model
there are dependent and independent variables. Xr is independent variable; represent quantity
of rail service demanded. And dependent variables are S, storage capacity, T, truck
ownership, R, rail car leasing, D average distance of rail shipment, Spr, rail road speed, Am,
availability of motor equipment, Vm, rail road promotion effort, Lm, damage in rail transport.

III. Data and Methodology

Time series data of 30 Quarters (2002-2009) is collected from Shaikh Rasheed & Shaikh
Tahir distributors Mumtaz abad Multan. They are the distributors of Medicam Toothpaste,
and also selling other type of daily householdes usage products since 1998. We have run
multiple regressions using Ordinary least Square method.

Demand Estimation
To estimate Quantity Demand of Medicam (QM), we have formulated the following model;
QM = f (PM, PC, PS, ADV, TR)
QM is Quantity demand of Medicam, PM is Price of Medicam, PS is Price of Shield brush,
ADV is Advertisement Expenditure, and TR is Total Revenue of the Firm.
Estimation of Elasticities
We calculate elasticities by taking Log of the whole model with the help following equation:
LQM = f (LPM, LPC, LPS, LAD, LTR)
In this equation LQM reveal the Log natural of Quantity demand of Medicam, LPM shows
the Log natural of Price of Medicam, LPS shows Log natural of Price of Shield brush, LAD
shows Log natural of Advertisement Expenditure, LTR shows Log natural of Total Revenue
of the firm. By taking log of the equation it shows the changes in variables in percentage
form.
Demand Forecasting
Now for the purpose of forecasting demand for 31st observation (3rd Quarter of 2009) by the
use of Econometric Model and after that we put the forecasted values in the econometric
equation. The forecasted values are calculated by assingning weights (0.30 and 0.50) with the
help of Exponential smoothing1 by following:
Ft+1= w At + (1-w) Ft
After forecasting the value of 3rd quarter of 2009 we calculate root mean square error and put
that forecasted value in econometric model that has low root mean square error.

IV. Results and Discussion

Based on time series analysis conducted by the researcher, this section provides some
important considerations about the demand of Medicam toothpaste. Table 1 portrays the
results of study which are arranged in five columns. In the 1st column indicates the
explanatory variables, 2nd column is about value of coefficients, standard errors are given in
third column. For reliability of our coefficient values, two tailed t-test is used whose values
are given in 4th column. It determines whether we may reject or may not reject null

Chapter 5, Managerial Economics, Dominick Salvatore, 4th Edition.

hypothesis at some level of significance (1 percent, 5 percent, and 10 percent). For level of
significance, we have included probability values in 5th column.
Demand Estimation and Elasticities
The table 1 reveals that there is negative relationship between price of Medicam (PM) and
Quantity demand of Medicam (QM), if there is 1 rupee change in price of Medicam then the
demand for Medicam will be change by 372.323. According to t-statistic Price of Medicam is
significant or reliable.
The relationship between price of Colgate (PC) and Quantity demand of Medicam
(QM) is positive because Colgate is a substitute of Medicam so if the substitute provider
competitive firm increase the price of its product (Colgate) then ultimately the demand For
Medicam will increase, If there is 1 rupee change in price of Colgate then the demand for
Medicam will change by 32.27. According to t-statistic Price of Colgate is not significant or
reliable.
Price of Shield brush (PS) and Quantity demand of Medicam (QM) are inversely
related because Shield is complimentary good of Medicam because most of the users of
Medicam use Shield tooth brush for their daily consumption of Medicam, if there is 1 rupee
change in price of Shield then the demand for Medicam will change by 342.97. According to
t-statistic price of Shield brush is significant or reliable.
There is positive relationship between advertisement expenditure of Colgate (ADV)
and Quantity demand of Medicam (QM) because when the firm increases there advertisement
then the demand for the product also increased, if there is 1 rupee change in Advertisement
then the demand for Medicam will change by 0.007454. According to t-statistic
advertisement expenditure is significant or reliable.
Total revenue of the firm (TR) and Quantity demand of Medicam (QM) are positively
related because when revenue of the firm increases then the demand for the product also
increases, if there is 1 rupee change in Total revenue of the firm then the demand for
Medicam will change by 0.000506. According to t-statistic total revenue is not significant or
reliable.
The coefficient of determination (R2) reveals that 81.52 percent variation in Demand
of Medicam is due to Price of Medicam, advertisement expenditure, total revenue and price
of Shield. According to F-statistic our model is also significant or reliable.

Table 1: Demand Estimation

Variable

Coefficient Std. Error t-Statistic Prob.

Constant

56409.83

1106.047

51.00129

Price of Medicam

-372.323

129.4724

-2.8757

0.0083

Price of Colgate

32.27227

112.0957

Price of Shield

-342.97

121.9709

Advertisement

0.007454

0.004184

1.781814 0.0874

Total Revenue

0.000506

0.000392

1.288469 0.2099

R Square

0.815

0.287899 0.7759
-2.8119

0.0097

Prob (F-Stats)

0.00

Table 2 reveals that the price, cross-price, and other elasticities such as when there is 1
percent increase in the price of Medicam then its demand decreased by 15.56 percent, if there
is 1 percent increase in the price of Colgate(substitute) then the demand for Medicam will be
increased by 1.42 percent, if there is 1 percent increase in the price of Shield
brush(complimentary) then the demand for Medicam will decrease by 5.59 percent, if there is
1 percent increase in the advertisement expenditure then the demand for the Medicam will
increase by 7.60 percent, and if there is 1 percent increase in the total revenue of the firm then
the demand for Medicam will increase by 2.47 percent. Price elasticity of demand is 0.15556, Cross price elasticity of demand w.r.t price of colgate is 0.01415, Cross price
elasticity of demand w.r.t price of shield tooth paste is -0.05593, Advertisement elasticity of
demand is 0.075911, and Total Revenue elasticity of demand is 0.024743.
Table 2: Elasticities
Variable

Elasticities

Price elasticity of demand

-0.15556

Cross price elasticity of demand w.r.t price of colgate

0.01415

Cross price elasticity of demand w.r.t price of shield tooth paste -0.05593
Advertisement elasticity of demand

0.075955

Total Revenue elasticity of demand

0.024743

Demand Forecasting
The forecasted values for explanatory variables are calculated with the help of Exponential
smoothing and then by putting these values in the Equation we can find the value of 31st
observation that value is the Quantity demand for Medicam Toothpaste in 3rd Quarter of
2009 which is 52295 Units that is the forecasted value for the 3rd Quarter of 2009.
Table 3 shows the forecasting of price of Medicam, with the help of exponential
smoothing we calculate the forecasted price of Medicam for the 2nd Quarter of 2009 by
assigning 0.30 and 0.50 weights and we choose 16.471096 because it has Low root mean
square error.
Table 3: Forecasting of Price of Medicam
Year (Quarters)
2002(1)
2002(2)
2002(3)
2002(4)
2003(1)
2003(2)
2003(3)
2003(4)
2004(1)
2004(2)
2004(3)
2004(4)
2005(1)
2005(2)
2005(3)
2005(4)
2006(1)
2006(2)
2006(3)
2006(4)
2007(1)
2007(2)
2007(3)
2007(4)
2008(1)
2008(2)
2008(3)

Actual price of
Medicam
15
15
15
16
16
16
17
17
19
19
19
19
19
20
20
20
23
23
23
23
26
26
26
27
30
30
30

Forecasted
W = 0.30
22.233333
20.063333
18.544333
17.781033
17.246723
16.872706
16.910894
16.937626
17.556338
17.989437
18.292606
18.504824
18.653377
19.057364
19.340155
19.538108
20.576676
21.303673
21.812571
22.1688
23.31816
24.122712
24.685898
25.380129
26.76609
27.736263
28.415384

Forecasted
W = 0.50
22.233333
18.616667
16.808333
16.404167
16.202083
16.101042
16.550521
16.77526
17.88763
18.443815
18.721908
18.860954
18.930477
19.465238
19.732619
19.86631
21.433155
22.216577
22.608289
22.804144
24.402072
25.201036
25.600518
26.300259
28.15013
29.075065
29.537532

2008(4)
2009(1)
2009(2)
2009(3)

30
34
34

RMSE

28.890769
30.423538
31.496477
22.047534

29.768766
31.884383
32.942192
16.471096

5.5276689

2.94677
Low Error

Table 4 shows the forecasting of price of Colgate, with the help of exponential smoothing we
calculate the forecasted price of Colgate for the 2nd Quarter of 2009 by assigning 0.30 and
0.50 weights and we choose 14.838255 because it has Low root mean square error.
Table 4: Forecasting of Price of Colgate (substitute)
Year (Quarters)
2002(1)
2002(2)
2002(3)
2002(4)
2003(1)
2003(2)
2003(3)
2003(4)
2004(1)
2004(2)
2004(3)
2004(4)
2005(1)
2005(2)
2005(3)
2005(4)
2006(1)
2006(2)
2006(3)
2006(4)
2007(1)
2007(2)
2007(3)
2007(4)
2008(1)
2008(2)
2008(3)
2008(4)

Actual price of
Colgate
12
12
12
12
12
15
15
15
17
17
17
17
18
18
18
18
18
20
20
22
22
27
27
27
27
29
29
29

Forecasted
W = 0.30
20.06666667
17.64666667
15.95266667
14.76686667
13.93680667
14.25576467
14.47903527
14.63532469
15.34472728
15.8413091
16.18891637
16.43224146
16.90256902
17.23179831
17.46225882
17.62358117
17.73650682
18.41555478
18.89088834
19.82362184
20.47653529
22.4335747
23.80350229
24.7624516
25.43371612
26.50360129
27.2525209
27.77676463

Forecasted
W = 0.50
20.066667
16.033333
14.016667
13.008333
12.504167
13.752083
14.376042
14.688021
15.84401
16.422005
16.711003
16.855501
17.427751
17.713875
17.856938
17.928469
17.964234
18.982117
19.491059
20.745529
21.372765
24.186382
25.593191
26.296596
26.648298
27.824149
28.412074
28.706037

2009(1)
2009(2)
2009(3)

30
30

RMSE

28.44373524
28.91061467
20.23743027

29.353019
29.676509
14.838255

6.534021146

3.5681959
Low Error

Table 5 shows the forecasting of price of Shield Brush, with the help of exponential
smoothing we calculate the forecasted price of Shield Brush for the 2nd Quarter of 2009 by
assigning 0.30 and 0.50 weights and we choose 12.185234 because it has Low root mean
square error.
Table 5: Forecasting of Price of Shield Brush (complimentary product)
Year (Quarters)
2002(1)
2002(2)
2002(3)
2002(4)
2003(1)
2003(2)
2003(3)
2003(4)
2004(1)
2004(2)
2004(3)
2004(4)
2005(1)
2005(2)
2005(3)
2005(4)
2006(1)
2006(2)
2006(3)
2006(4)
2007(1)
2007(2)
2007(3)
2007(4)
2008(1)
2008(2)
2008(3)
2008(4)

Actual price of
Shield
8
8
8
8
8
10
10
10
10
10
10
10
10
12
12
12
12
17
17
17
17
19
19
19
19
23
23
23

Forecasted
W = 0.30
14.36666667
12.45666667
11.11966667
10.18376667
9.528636667
9.670045667
9.769031967
9.838322377
9.886825664
9.920777965
9.944544575
9.961181203
9.972826842
10.58097879
11.00668515
11.30467961
11.51327572
13.15929301
14.31150511
15.11805357
15.6826375
16.67784625
17.37449238
17.86214466
18.20350126
19.64245088
20.64971562
21.35480093

Forecasted
W = 0.50
14.366667
11.183333
9.5916667
8.7958333
8.3979167
9.1989583
9.5994792
9.7997396
9.8998698
9.9499349
9.9749674
9.9874837
9.9937419
10.996871
11.498435
11.749218
11.874609
14.437304
15.718652
16.359326
16.679663
17.839832
18.419916
18.709958
18.854979
20.927489
21.963745
22.481872

2009(1)
2009(2)
2009(3)

25
25

RMSE

22.44836065
23.21385246
16.24969672

23.740936
24.370468
12.185234

4.919749172

2.4771419
Low Error

Table 6 shows the forecasting of Advertisement expenditure, with the help of exponential
smoothing we calculate the forecasted Advertisement expenditure for the 2nd Quarter of
2009 by assigning 0.30 and 0.50 weights and we choose 437045.7973 because it has Low
root mean square error.
Table 6: Forecasting of Advertisement expenditure
Year
(Quarters)
2002(1)
2002(2)
2002(3)
2002(4)
2003(1)
2003(2)
2003(3)
2003(4)
2004(1)
2004(2)
2004(3)
2004(4)
2005(1)
2005(2)
2005(3)
2005(4)
2006(1)
2006(2)
2006(3)
2006(4)
2007(1)
2007(2)
2007(3)
2007(4)
2008(1)
2008(2)
2008(3)
2008(4)
2009(1)
2009(2)

Actual
Advertisement
200000
200000
200000
200000
300000
300000
300000
300000
425000
425000
425000
425000
550000
550000
550000
550000
625000
625000
625000
625000
750000
750000
750000
750000
800000
800000
800000
800000
900000
900000

Forecasted
W = 0.30
546666.6667
442666.6667
369866.6667
318906.6667
313234.6667
309264.2667
306484.9867
304539.4907
340677.6435
365974.3504
383682.0453
396077.4317
442254.2022
474577.9415
497204.5591
513043.1914
546630.2339
570141.1638
586598.8146
598119.1702
643683.4192
675578.3934
697904.8754
713533.4128
739473.3889
757631.3723
770341.9606
779239.3724
815467.5607
840827.2925

Forecasted
W = 0.50
546666.6667
373333.3333
286666.6667
243333.3333
271666.6667
285833.3333
292916.6667
296458.3333
360729.1667
392864.5833
408932.2917
416966.1458
483483.0729
516741.5365
533370.7682
541685.3841
583342.6921
604171.346
614585.673
619792.8365
684896.4183
717448.2091
733724.1046
741862.0523
770931.0261
785465.5131
792732.7565
796366.3783
848183.1891
874091.5946

2009(3)

588579.1047

437045.7973

RMSE

10220705376

6148406462
Low Error

Table 7 shows the forecasting of Total revenue of the firm, with the help of exponential
smoothing we calculate the forecasted Total revenue of the firm for the 2nd Quarter of 2009
by assigning 0.30 and 0.50 weights and we choose 4862543.909 because it has Low root
mean square error.
Table 7: Forecasting of Total Revenue
Year
(Quarters)
2002(1)
2002(2)
2002(3)
2002(4)
2003(1)
2003(2)
2003(3)
2003(4)
2004(1)
2004(2)
2004(3)
2004(4)
2005(1)
2005(2)
2005(3)
2005(4)
2006(1)
2006(2)
2006(3)
2006(4)
2007(1)
2007(2)
2007(3)
2007(4)
2008(1)
2008(2)
2008(3)
2008(4)
2009(1)

Actual Total
Revenue
1500000
1550000
1780000
2200000
2750000
3290000
3580000
3740000
3805000
3970000
4550000
4785000
5290000
5500000
5750000
6050000
6490000
6778000
6900000
7030000
7409000
7990000
8100000
8309000
8630000
8827000
9401000
9682000
9748000

Forecasted
W = 0.30
5843033.333
4555123.333
3722586.333
3265810.433
3111067.303
3164747.112
3289322.979
3424526.085
3538668.26
3668067.782
3932647.447
4188353.213
4518847.249
4813193.074
5094235.152
5380964.606
5713675.225
6032972.657
6293080.86
6514156.602
6782609.621
7144826.735
7431378.714
7694665.1
7975265.57
8230785.899
8581850.129
8911895.091
9162726.563

Forecasted
W = 0.50
5843033.333
3696516.667
2738258.333
2469129.167
2609564.583
2949782.292
3264891.146
3502445.573
3653722.786
3811861.393
4180930.697
4482965.348
4886482.674
5193241.337
5471620.669
5760810.334
6125405.167
6451702.584
6675851.292
6852925.646
7130962.823
7560481.411
7830240.706
8069620.353
8349810.176
8588405.088
8994702.544
9338351.272
9543175.636

2009(2)
2009(3)
RMSE

9907000

9386008.594
6570206.016

9725087.818
4862543.909

1.41204E+12

8.88375E+11
Low Error

Now for the purpose of forecasting demand for 31st observation (3rd Quarter of 2009) we put
the forecasted values in the equation. The forecasted values are calculated with the help of
Exponential smoothing in Table 3, 4, 5, 6 and 7.
QM = 56409.83 - 372.323 PM + 32.27227 PC - 342.97 PS + 0.007454 ADV + 0.000506 TR
QM = 56409.83 - 372.323 (16.4711) + 32.27227 (14.83825) - 342.97 (12.18523)
+ 0.007454 (437045.797) + 0.000506 (4862543.909)
QM = 52295Units

V. Conclusions and Policy Recommendations

The study analyzes determinants of demand estimation and forecasting based on Time series
data collected from Shaikh Rasheed & Shaikh Tahir distributors Multan district through
personal visit. We have found that our study supports the theoretical studies of Demand
estimation and forecasting. Which proves the theoretical studies of demand estimation there
is negative relationship between price of medicam and Quantity demand of Medicam, there is
positive relationship between price of Colgate and Quantity demand of Medicam, there is
negative relationship between price of Shield brush and Quantity demand of Medicam, there
is positive relationship between advertisement expenditure of Colgate and Quantity demand
of Medicam, there is positive relationship between total revenue of the firm and Quantity
demand of Medicam.
The study also gives comprehensive contribution to reduce the risk or uncertainty that
the firm faces in its short-term operational decision making and in planning for its long-term
growth. Price elasticity of demand is -0.15556, Cross price elasticity of demand w.r.t price of
colgate is 0.01415, Cross price elasticity of demand w.r.t price of shield tooth paste is 0.05593, Advertisement elasticity of demand is 0.075911, and Total Revenue elasticity of
demand is 0.024743. The forecasted value of Demand for 3rd quarter of 2009 is 52295Units.
Based on our results, study suggests that Firms should not increase the price of the
Medicam because it decreases the sale or demand of the Medicam as shown in the table. Firm

should increase its advertisement expenditure to increase its sales because by 1 percent
increasing in advertisement expenditure the firm can increase the demand for the Medicam
toothpaste. For effective Demand forecasting the firms should choose exponential smoothing
technique because it gives more actual and desired results and it considered all the past
observations so that it enhance the firm to forecast demand more accurately.
As results suggest that the chance of Error is Low using w = 0.50 in forcasting so that
the firm should choose w = 0.50 rather than w = 0.30 because w = 0.30 has high chance of
Error, so we recommend that the firm should choos here w=0.50 for accurate forecasting.

References
Marshall H. Medoff, (1997). A pooled time-series analysis of abortion demand, Population
research and policy review, Vol. 16, pp. 597-605.
Bianco V, Manca O, Nardini S, (2009). Electricity consumption forecasting in Italy using
linear regression models. Journal of Enery Economics, Vol. 34, pp. 1412-21.
Dong D. (1998), Estimation of demand functions using cross-sectional household data: The
problem revisited, American Journal of agricultural economics, Vol. 80(3), pp. 466473.
Eiswerth et al (1998), Residential electricity use and the potential impacts of energy
efficiency option in Pakistan, Energy policy, Vol.26 (4), pp 307-315.
Johnson M.(1976). Estimation of qualityinfluence on transportation demand, journal of
Agricultural Economics, Vol.58, pp. 496-503

Appendix
Table A: Data
Price of Colgate
toothpaste

Price of Shield
Brush

Advertisement
expenditure

Total
Revenue

Demand of
Medicam

2002(1)

Price of
Medicam
toothpaste
15

12

200000

1500000

50500

2002(2)

15

12

200000

1550000

50900

2002(3)

15

12

200000

1780000

50400

2002(4)

16

12

200000

2200000

51300

2003(1)

16

12

300000

2750000

52300

2003(2)

16

15

10

300000

3290000

51100

2003(3)

17

15

10

300000

3580000

51500

2003(4)

17

15

10

300000

3740000

51300

2004(1)

19

17

10

425000

3805000

51200

2004(2)

19

17

10

425000

3970000

51300

2004(3)

19

17

10

425000

4550000

51650

2004(4)

19

17

10

425000

4785000

51300

2005(1)

19

18

10

550000

5290000

52800

2005(2)

20

18

12

550000

5500000

52945

2005(3)

20

18

12

550000

5750000

52330

2005(4)

20

18

12

550000

6050000

52890

2006(1)

23

18

12

625000

6490000

52900

2006(2)

23

20

17

625000

6778000

51839

2006(3)

23

20

17

625000

6900000

50220

2006(4)

23

22

17

625000

7030000

50300

2007(1)

26

22

17

750000

7409000

49990

2007(2)

26

27

19

750000

7990000

50500

2007(3)

26

27

19

750000

8100000

51200

2007(4)

27

27

19

750000

8309000

51120

2008(1)

30

27

19

800000

8630000

50550

2008(2)

30

29

23

800000

8827000

50510

2008(3)

30

29

23

800000

9401000

48500

2008(4)

30

29

23

800000

9682000

48435

2009(1)

34

30

25

900000

9748000

47290

2009(2)

34

30

25

900000

9907000

47380

Year
(Quarters)

Table B: Log natural of Data

Year

Log of Demand of

Log of Price of

Log of Price of

Log of Price Of

Log of

Log of Total

(Quarters)

Medicam

Medicam

Colgate

Shield

Advertisemet

Revenue

Expenditure

2002(1)
2002(2)
2002(3)
2002(4)
2003(1)
2003(2)
2003(3)
2003(4)
2004(1)
2004(2)
2004(3)
2004(4)
2005(1)
2005(2)
2005(3)
2005(4)
2006(1)
2006(2)
2006(3)
2006(4)
2007(1)
2007(2)
2007(3)
2007(4)
2008(1)
2008(2)
2008(3)
2008(4)
2009(1)
2009(2)

10.82973

2.70805

2.484907

2.079442

12.20607

14.22098

10.83762

2.70805

2.484907

2.079442

12.20607

14.25377

10.82775

2.70805

2.484907

2.079442

12.20607

14.39212

10.84545

2.772589

2.484907

2.079442

12.20607

14.60397

10.86475

2.772589

2.484907

2.079442

12.61154

14.82711

10.84154

2.772589

2.70805

2.302585

12.61154

15.0064

10.84934

2.833213

2.70805

2.302585

12.61154

15.09087

10.84545

2.833213

2.70805

2.302585

12.61154

15.1346

10.84349

2.944439

2.833213

2.302585

12.95984

15.15183

10.84545

2.944439

2.833213

2.302585

12.95984

15.19428

10.85225

2.944439

2.833213

2.302585

12.95984

15.33064

10.84545

2.944439

2.833213

2.302585

12.95984

15.381

10.87427

2.944439

2.890372

2.302585

13.21767

15.48133

10.87701

2.995732

2.890372

2.484907

13.21767

15.52026

10.86533

2.995732

2.890372

2.484907

13.21767

15.56471

10.87597

2.995732

2.890372

2.484907

13.21767

15.61557

10.87616

3.135494

2.890372

2.484907

13.34551

15.68577

10.8559

3.135494

2.995732

2.833213

13.34551

15.72919

10.82417

3.135494

2.995732

2.833213

13.34551

15.74703

10.82576

3.135494

3.091042

2.833213

13.34551

15.7657

10.81958

3.258097

3.091042

2.833213

13.52783

15.81821

10.82973

3.258097

3.295837

2.944439

13.52783

15.8937

10.84349

3.258097

3.295837

2.944439

13.52783

15.90737

10.84193

3.295837

3.295837

2.944439

13.52783

15.93285

10.83072

3.401197

3.295837

2.944439

13.59237

15.97076

10.82993

3.401197

3.367296

3.135494

13.59237

15.99333

10.78932

3.401197

3.367296

3.135494

13.59237

16.05633

10.78798

3.401197

3.367296

3.135494

13.59237

16.08578

10.76405

3.526361

3.401197

3.218876

13.71015

16.09257

10.76596

3.526361

3.401197

3.218876

13.71015

16.10875