03 Jun Question Note: read the case and answer the questions given
Question
Note: read the case and answer the questions given below with proper explanations. Use Excel solver to calculate
the estimation and explain the results.
CONSULTING PROJECT
Estimation and Analysis of Demand for Fast Food Meals
You work for Price Waterman Coopers as a market analyst. PWC has been hired by the owner of
two Burger King restaurants located in a suburban Atlanta market area to study the demand for its basic
hamburger meal package–referred to as “Combination 1″ on its menus. The two restaurants face
competition in the Atlanta suburb from five other hamburger restaurants (three MacDonald’s and two
Wendy’s restaurants) and three other restaurants serving “drive-through” fast food (a Taco Bell, a
Kentucky Fried Chicken, and a small family-owned Chinese restaurant).
The owner of the two Burger King restaurants provides PWC with the data shown in Table 1. Q
is the total number of Combination 1 meals sold at both locations during each week in 1998. P is the
average price charged for a Combination 1 meal at the two locations. [Prices are identical at the two
Burger King locations.] Every week the Burger King owner advertises special price offers at its two
restaurants exclusively in daily newspaper advertisements. A is the dollar amount spent on newspaper ads
for each week in 1998. The owner could not provide PWC with data on prices charged by other
competing restaurants during 1998. For the one-year time period of the study, household income and
population in the suburb did not change enough to warrant inclusion in the demand analysis.
TABLE 1: Weekly Sales Data for Combination 1 Meals (1998)
week
Q
P
A
week
Q
P
A
a.
b.
method
Using the data in Table 1, specify a linear functional form for the demand for Combination 1 meals, and run a regression to estimate the demand for Combo 1 meals.
Should you use the ordinary least-squares (OLS) method or the two-stage least-squares (2SLS) method for estimating industry demand for rutabagas? Explain briefly.
c.Using statistical software, estimate the parameters of the empirical demand function specified
in part a. Write your estimated industry demand equation for rutabagas.
d.Evaluate your regression results by examining signs of parameters, p-values (or t-ratios), and
e. Discuss how the estimation of demand might be improved.
f.Using your estimated demand equation, calculate an own-price elasticity and an
advertising elasticity. Compute the elasticity values at the sample mean values of the data in
Table 1. Discuss, in quantitative terms, the meaning of each elasticity.
g.If the owner plans to charge a price of $4.15 for a Combination 1 meal and spend $18,000
per week on advertising, how many Combination 1 meals do you predict will be sold each
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