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14 Jan 2018

19) Suppose Swiss Chalet in Moncton knows that the demand for their half-chicken meals is elastic. If the manager wants to increase total revenue from half-chicken meal sales, he should A) lower the price of a half-chicken meal. B) hire fewer employees. C) decrease the supply of half-chicken meals. D) raise the price of a half-chicken meal. E) not change the price of a half-chicken meal.

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15 Jan 2018
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Related questions

Using the data below, I need answers to the following questions:

a) 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 1meals.

b) Using statistical software (Excel), estimate the parameters of the empirical demand function specifiedin part a.Write your estimated industry demand equation.

c) Evaluate your regression results by examining signs of parameters, p-values, and the R2.

d) Discuss how the estimation of demand might beimproved.

e) 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 week?

f) If the owner spends $18,000 per week on advertising, write the equation for the inverse demand function. Then, calculate the demand price for 50,000 Combination meals.

Estimation and Analysis of Demand for Fast Food Meals

You work for PriceWatermanCoopers 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

1

51,345

2.78

4,280

27

78,953

2.27

21,225

2

50,337

2.35

3,875

28

52,875

3.78

7,580

3

86,732

3.22

12,360

29

81,263

3.95

4,175

4

118,117

1.85

19,250

30

67,260

3.52

4,365

5

48,024

2.65

6,450

31

83,323

3.45

12,250

6

97,375

2.95

8,750

32

68,322

3.92

11,850

7

75,751

2.86

9,600

33

71,925

4.05

14,360

8

78,797

3.35

9,600

34

29,372

4.01

9,540

9

59,856

3.45

9,600

35

21,710

3.68

7,250

10

23,696

3.25

6,250

36

37,833

3.62

4,280

11

61,385

3.21

4,780

37

41,154

3.57

13,800

12

63,750

3.02

6,770

38

50,925

3.65

15,300

13

60,996

3.16

6,325

39

57,657

3.89

5,250

14

84,276

2.95

9,655

40

52,036

3.86

7,650

15

54,222

2.65

10,450

41

58,677

3.95

6,650

16

58,131

3.24

9,750

42

73,902

3.91

9,850

17

55,398

3.55

11,500

43

55,327

3.88

8,350

18

69,943

3.75

8,975

44

16,262

4.12

10,250

19

79,785

3.85

8,975

45

38,348

3.94

16,450

20

38,892

3.76

6,755

46

29,810

4.15

13,200

21

43,240

3.65

5,500

47

69,613

4.12

14,600

22

52,078

3.58

4,365

48

45,822

4.16

13,250

23

11,321

3.78

9,525

49

43,207

4.00

18,450

24

73,113

3.75

18,600

50

81,998

3.93

16,500

25

79,988

3.22

14,450

51

46,756

3.89

6,500

26

98,311

3.42

15,500

52

34,592

3.83

5,650

For each case, choose the condition that characterizes demand: elastic demand, inelastic demand, or unit-elastic demand.

a. Total revenue decreases when the price increases.

b. The additional revenue generated by an increase in quantity sold is exactly offset by revenue lost from the fall in price received per unit.

c. Total revenue falls when output increases.

d. Producers in an industry find they can increase their total revenues by coordinating a reduction in industry output.

e. As the price of margarine rises by 20%, a manufacturer of baked goods increases its quantity of butter demanded by 5%. Calculate the cross-price elasticity of demand between butter and margarine. Are butter and margarine substitutes or complements for this manufacturer?

f. After Malia's income increased from $12,000 to $18,000 a year, her purchases of album downloads increased from 10 to 40 downloads a year. Calculate Malia's income elasticity of demand for albums.

g. Expensive restaurant meals are income-elastic goods for most people, including Sanjay. Suppose his income falls by 10% this year. What can you predict about the change in Sanjay's consumption of expensive restaurant meals?

Michael spends all of his income on coffee and donuts. A coffee costs $2.50 and a donut costs $2.00. At his current consumption level, the marginal utility for coffee is 30 utils, and the marginal utility for a donut is 60 utils. Which statement best describes what Michael needs to do to maximize his utility?

Question 1 options:

1)

buy less of both coffee and donuts.

2)

buy less coffee and more donuts.

3)

buy more coffee and less donuts.

4)

spend the same amount on coffee as he does on donuts.

Question 2

What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?

Question 2 options:

1)

the optimal consumption bundle.

2)

the optimal production bundle.

3)

diminishing marginal utility.

4)

optimal point.

Question 3 (1 point)

What does the economic theory of marginal utility infer?

Question 3 options:

1)

consumers naturally know which consumption choices will maximize their utility.

2)

consumers who watch market trends are better at maximizing their utility than are those who do not watch those trends.

3)

one cannot maximize utility without taking an economics class that explains utility theory.

4)

one cannot maximize utility without doing the math of calculating the ratios of marginal utility divided by price.

Question 4

Kate is addicted to chocolate and does not care how much it costs. In fact, she spends more than $20 a week on chocolate. What can be concluded about elasticity in her buying decisions?

Question 4 options:

1)

Her income elasticity of demand for chocolate is equal to one.

2)

Her income elasticity of demand for chocolate is equal to zero.

3)

Her price elasticity of demand for chocolate is equal to one.

4)

Her price elasticity of demand for chocolate is equal to zero.

Save

Question 5 (1 point)

Why does the demand for a good become relatively more elastic?

Question 5 options:

1)

substitutes for the good become more available.

2)

substitutes for the good become less available.

3)

the good becomes more of a necessity.

4)

the time allowed for adjustment is shortened.

Save

Question 6 (1 point)

Assume the price of chicken per pound is $3.49 and that Americans purchase 10 million pounds per chicken every month. If the price of chicken increases to $5.49 per pound, identify what will occur to consumer surplus?

Question 6 options:

1)

consumer surplus increases.

2)

consumer surplus decreases.

3)

consumer surplus creates incentive to save.

4)

consumer surplus creates incentive to spend.

Question 7 (1 point)

What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?

Question 7 options:

1)

profit.

2)

revenue.

3)

consumer utility.

4)

consumer surplus.

Question 8

Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?

Question 8 options:

1)

Adam, Brian, Robert, and Sam.

2)

Brian and Robert.

3)

Adam and Sam.

4)

Brian, Robert, and Sam.

Save

Question 9 (1 point)

Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?

Question 9 options:

1)

$8

2)

$6

3)

$7

4)

$5

Question 10 (1 point)

Manfred is willing to shovel one driveway for $25, a second for $30, and a third for $35. Assume that the market rate for shoveling driveways is $32. How many driveways will Manfred shovel, what will be his total revenue, and what will be his producer surplus?

Question 10 options:

1)

Manfred will shovel two driveways for a total revenue of $64 and his producer surplus will be $9.

2)

Manfred will shovel three driveways for a total revenue of $75 and his producer surplus will be $12.

3)

Manfred will shovel three driveways for a total revenue of $96 and his producer surplus will be $5.

4)

Manfred will shovel four driveways for a total revenue of $125 and his producer surplus will be $18.

Save

Question 11 (1 point)

What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?

Question 11 options:

1)

producer shortage.

2)

producer surplus.

3)

consumer shortage.

4)

consumer surplus.

Save

Question 12 (1 point)

What will happen when there is an increase in the price of eBook downloads?

Question 12 options:

1)

It reduces the marginal utility derived from each dollar spent on eBooks.

2)

It reduces the marginal utility derived from each hardcopy book purchased.

3)

There will not be a substitution effect.

4)

There will not be a change in the number of eBooks in the set of consumption possibilities.

Save

Question 13 (1 point)

When is price elasticity of demand utilized to measure how an individual changes the quantity they demand?

Question 13 options:

1)

when supply changes.

2)

when product quality changes.

3)

when marketing changes.

4)

when price changes.

Save

Question 14 (1 point)

Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Mary’s optimal weekly consumption bundle?

Question 14 options:

1)

25 cups of tea and 50 pastries.

2)

50 cups of tea and 25 pastries.

3)

58 cups of tea and 20 pastries.

4)

60 cups of tea and 30 pastries.

Save

Question 15 (1 point)

When is producer surplus a positive value?

Question 15 options:

1)

the price the producer is willing to charge equals the market price.

2)

there is no tax applied to the good.

3)

the price the producer is willing to charge is less than the market price.

4)

the price the producer is willing to charge is greater than the market price.

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