estimating the demand analysis of fast food meals

Project description
Case study on estimating the demand analysis of fast food meals

Note: read the case and answer the questions given below with proper explanations. Use Excel solver to calculate the estimation and explain the

results.

CONSULTINGPROJECT
EstimationandAnalysisofDemandforFastFoodMeals

You work for Price Waterman Coopersasamarket analyst. PWC has been hiredby the owner of two Burger King restaurants located in a suburb an Atlanta

market are atostudy the demand for its basic amburger meal package referred to as Combination 1″on its menus. The two restaurants face competition in

the Atlant suburb from five other hamburger restaurants (three Mac Donald sand two Wendys restaurants) and three other restaurants serving drive-

throughfastfood(aTacoBell,a KentuckyFried Chicken, and a smallfamily-owned Chinese restaurant).

The owner of the two Burge King restaurants provides PWC with the data shown inTable1. Q is the total number of Combination 1 meals sold at both

locations during each week in 1998. Pis the average price charged for a Combination 1 meal at the two locations. Prices are identical at the two

Burger King locations. EveryweektheBurgerKingowneradvertisesspecialpriceoffersatitstwo restaurantsexclusivelyindailynewspaperadvertisements. A

isthedollaramountspenton newspaperads foreachweekin1998. TheownercouldnotprovidePWCwithdataonpriceschargedbyother competingrestaurantsduring1998.

Fortheone-yeartimeperiodofthestudy,householdincomeand population in the suburbdid not changeenough to warrantinclusioninthedemand analysis.

TABLE1: WeeklySalesDatafor Combination1Meals(1998)

weekQ P A weekQ P A
a.UsingthedatainTable1,specifyalinearfunctionalformforthedemandforCombination1 meals,andrunaregressiontoestimatethedemandforCombo1meals.

b. Shouldyouusetheordinaryleast-squares(OLS)methodorthetwo-stageleast-squaresmethod
(2SLS) methodforestimatingindustrydemand forrutabagas? Explain briefly.

c.Usingstatisticalsoftware,estimatetheparametersoftheempiricaldemandfunctionspecifiedin parta. Write yourestimated industrydemand

equationforrutabagas.

d. Evaluateyourregressionresultsbyexaminingsignsofparameters,p-values(ort-ratios),andthe
R2.

e. Discuss howthe estimationof demand might be improved.

f.Usingyourestimateddemandequation,calculateanown-priceelasticityandanadvertising elasticity.

ComputetheelasticityvaluesatthesamplemeanvaluesofthedatainTable1. Discuss,in quantitativeterms,themeaningofeachelasticity.

g. Iftheownerplanstochargeapriceof$4.15foraCombination1mealandspend$18,000per weekon advertising, howmanyCombination 1 mealsdo you predict

willbesoldeach week?

h.Iftheownerspends$18,000perweekonadvertising,writetheequationfortheinversedemand function.Then,calculate the demand pricefor50,000Combination1 meals

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