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SKYLINE UNIVERSITY CASE STUDY - Estimation and Analysis of Demand for Fast Food Meals




Question;QuestionNote: read the case and answer the questions given below with proper explanations. Use Excel solver to calculatethe estimation and explain the results.CONSULTING PROJECTEstimation and Analysis of Demand for Fast Food MealsYou work for Price Waterman Coopers as a market analyst. PWC has been hired by the owner oftwo Burger King restaurants located in a suburban Atlanta market area to study the demand for its basichamburger meal package?referred to as ?Combination 1" on its menus. The two restaurants facecompetition in the Atlanta suburb from five other hamburger restaurants (three MacDonald?s and twoWendy?s restaurants) and three other restaurants serving ?drive-through? fast food (a Taco Bell, aKentucky 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. Qis the total number of Combination 1 meals sold at both locations during each week in 1998. P is theaverage price charged for a Combination 1 meal at the two locations. [Prices are identical at the twoBurger King locations.] Every week the Burger King owner advertises special price offers at its tworestaurants exclusively in daily newspaper advertisements. A is the dollar amount spent on newspaper adsfor each week in 1998. The owner could not provide PWC with data on prices charged by othercompeting restaurants during 1998. For the one-year time period of the study, household income andpopulation in the suburb did not change enough to warrant inclusion in the demand analysis.TABLE 1: Weekly Sales Data for Combination 1 Meals (1998)weekQPAweekQPAa.b.methodUsing 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 specifiedin 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), ande. Discuss how the estimation of demand might be improved.f.Using your estimated demand equation, calculate an own-price elasticity and anadvertising elasticity. Compute the elasticity values at the sample mean values of the data inTable 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 $18,000per week on advertising, how many Combination 1 meals do you predict will be sold eachweek?R2.h.If the owner spends $18,000 per week on advertising, write the equation for the inversedemand function. Then, calculate the demand price for 50,000 Combination 1 meals


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