Exercise 1. Taco Del Mar has completed a study of weekly demand for its tacos in Washington Stateâs regional markets.
The study developed the following demand function: Q = 500 â 1,100P + 1.2A + 60Pop + 750Pc
where
Q is the number of tacos sold per store per store per week;
A is the level of local advertising expenditure in dollars;
Pop is the local population in thousands;
and Pc is the average taco price of local competitors.
For the typical Taco Del Mar outlet, P = $1.50, A = $1,200, Pop = 50, and Pc = $1.40
Use the Lab 3 Excel file and program the elasticity worksheet (using the appropriate formulas) to answer the following:
a. Estimate the weekly sales for the typical Taco Del Mar (given the above information).
b. What is the current own price elasticity for Taco Del Mar tacos?
c. Should Taco Del Mar raise its taco prices? Discuss why or why not.
d. Using Excel calculate the marginal revenue if Taco Del Mar increases its taco price to $1.70.
e. Calculate the advertising elasticity for Taco Del Mar tacos.
f. Use the advertising elasticity to predict the change in Q from a 1% increase in advertising expense.
g. Use your demand function to calculate the change in Q from a 1% increase in advertising expense.
h. Calculate the cross price elasticity of local taco competitors.
i. Are the competitor tacos complements or substitutes? Discuss why or why not.
Exercise 1. Taco Del Mar has completed a study of weekly demand for its tacos in Washington Stateâs regional markets.
The study developed the following demand function: Q = 500 â 1,100P + 1.2A + 60Pop + 750Pc
where
Q is the number of tacos sold per store per store per week;
A is the level of local advertising expenditure in dollars;
Pop is the local population in thousands;
and Pc is the average taco price of local competitors.
For the typical Taco Del Mar outlet, P = $1.50, A = $1,200, Pop = 50, and Pc = $1.40
Use the Lab 3 Excel file and program the elasticity worksheet (using the appropriate formulas) to answer the following:
a. Estimate the weekly sales for the typical Taco Del Mar (given the above information).
b. What is the current own price elasticity for Taco Del Mar tacos?
c. Should Taco Del Mar raise its taco prices? Discuss why or why not.
d. Using Excel calculate the marginal revenue if Taco Del Mar increases its taco price to $1.70.
e. Calculate the advertising elasticity for Taco Del Mar tacos.
f. Use the advertising elasticity to predict the change in Q from a 1% increase in advertising expense.
g. Use your demand function to calculate the change in Q from a 1% increase in advertising expense.
h. Calculate the cross price elasticity of local taco competitors.
i. Are the competitor tacos complements or substitutes? Discuss why or why not.
Related textbook solutions
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 packageâreferred to as âCombination 1" on its menus. The two restaurants face competition in the Atlanta suburb from five other hamburger restaurants (three MacDonaldâs and two Wendyâs restaurants) and three other restaurants serving âdrive-throughâ 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 |
