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Assignment 1 “Making Decisions Based on Demand and Forecasting”

Strayer University

ECO 5550 – Managerial Economics and Globalization

May 12, 2013

Making Decisions Based on Demand and Forecasting

There are several demographic and independent variables which are relevant in completing a demand analysis for pizza in Loudoun County, Virginia. The first variable that I used in completing my demand analysis is the average cost per pizza in the Loudoun County, Virginia area. The average cost of pizza is imperative in completing a demand analysis, because consumers in Loudoun County, Virginia have several choices in pizza companies vying for their attention. The second variable that I used was the sales revenue for Domino’s Pizza domestic stores for the quarters ranging from the first quarter of 2010 to the first quarter of 2013. Once I obtained the sales figures for the quarters ranging from the first quarter of 2010 to the first quarter of 2013, I then divided the sales revenue in order to obtain the average sales revenue for each domestic store. In order to complete a demand analysis, and forecasting income for future periods one must be able to know the relationship between the average sales per store, and the consumers who are demanding the product. The third variable that I used in completing my demand analysis is median income for Loudoun County, Virginia. Median income is significant for two reasons; first one can tell if the median income can afford to purchase pizza if a new restaurant is established, and secondly one can review the trend in median income. Reviewing the median income trend provides significant feedback value by revealing the economic state of the area in which one is considering in opening a restaurant. The last variable that I used in completing my demand analysis is core population of the pizza consumers in Loudoun County,…...

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...ECO 550: Assignment 1: SUMMARZIED SOLUTION Q1) The demand equation is given as follows: QD = -5200 -42P +20Px +5.2 I +0.2 A + 0.25 M Now, we substitute the values provided in the question in the equation above, which yields QD = -5200 -42P +20Px +5.2 I +0.2 A + 0.25 M = -5200 -42($5) +20($6) +5.2($5,500) +0.2($10,000) +0.25(5000) = -5200 -210 +120 +28,600 +2000 +1250 QD = 26,560 The different elasticities are calculated as follows: (Own) Price Elasticity of Demand ((Ep ) = ∆Q x P ∆P Q = -(42) x ($5) [Substituting price for low-calorie frozen food is 500 cents or $5] 26560 [Substituting quantity demanded (Q) =26560] = -0.0079 [implying the demand for microwavable food is extremely inelastic] Cross Price Elasticity of Demand (EX) = ∆Q x P ∆P Q = +(20) x ($6) [Substituting price for productx-competitor’s food is 600 cents or $6] 26560 [Substituting quantity demanded (Q) =26560] = +0.0045 [implying the demand for......

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...Demand Estimation | [Type the document subtitle] | | Professor: Dr. Camille Castorina | | ECO 550: Managerial Economics and Globalization | 7/21/2014 | | In this assignment we will look at a certain scenario that involves estimating the demand of a product when certain variables are put into place. So first thing is understanding what is demand and how does it apply in Economics. “The law of demand states that when the price of a good rises, the amount demanded falls, and when the price falls, the amount demanded rises. Economists have considered this thoroughly and have developed a measure of the degree of cutback, which they call the “elasticity of demand.” The elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.” “The greater the absolute value of this ratio, the greater is the elasticity of demand. When there is a close substitute for one firm’s brand, for example, a small percentage increase in that firm’s price may lead to a large percentage cut in the amount of the firm’s good demanded. In such a case, economists say that the demand for the good is highly elastic. On the other hand, when there are few good substitutes for a firm’s product, the firm might be able to raise its price substantially with only a small decrease in the quantity demanded resulting. In such a case, demand is said to be highly inelastic” (Henderson,. D 2008). Now let’s look at converting all price values into......

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...ECO550 Week 3 Assignment 1 ECO 550 Part 1: QD = - 5200 – 42P + 20C + 5.2(I) + 0.20(A) + 0.25(M) By converting the cent values into dollars and by putting the values of Price, competitions, income, Advertisement and number of oven, we shall have the following demand. So 500 cents= 5 Dollar 600 Cents= 6 Dollars QD=-5200-42(5)+20(6)+5.2(5500)+0.2(10,000)+0.25(5000) QD = -5200-210+120+28600+2000+1250 QD = 26,560 units Ep ( Price elasticity of demand) Own price elasticity of demand (ep) = ∂Q∂P×PQ ∂Q∂P = -42, P = 5, Q = 26,560 Own Price elasticity (ep) = - 42 × 526,560 x 100= - 0.79 (approx.) EX (Cross Price elasticity-in terms of competitors’ products) Cross price elasticity (exy) = ∂Q∂Px×PQ ∂Q∂Px = 20, Px = 6, Q = 26,560 Cross price elasticity (exy) = 6 × 2026,560 x 100= 0.45 (approx.) EI (Income elasticity) Income elasticity (eI) = ∂Q∂I×IQ ∂Q∂I = 5.2, I = 5500, Q = 26,560 Income elasticity (eI) = 5.2 × 550026,560 = 1.077 (approx.) EA ( Advertisement elasticity) Advertisement elasticity (eA) = ∂Q∂A×AQ ∂Q∂A = 0.2, A = 10,000, Q = 26,560 Advertisement elasticity (eA) = 0.2 × 10,00026,560 = 0.075 (approx.) EM Supply elasticity Supply elasticity (eM) = ∂Q∂A×MQ ∂Q∂A = 0.25, M = 5,000, Q = 26,560 Suppply elasticity (eA) = 0.25 × 5,00026,560 = 0.047 (approx.) Part 2: Price elasticity of demand Price elasticity is -0.79. There is negative relationship between price and demand. However, the ratio is less than 1, which means that an......

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...Making Decisions Based on Demand and Forecasting Sylvia Evans Dr. Elkanah Faux ECO 550 January 27, 2013 Strayer University In this assignment I will be discussing the t that Domino’s is considering entering the marketplace in my community of Waynesboro, GA. I have conducted research to gather information in regards to demand for this business based on population, average income per household and average cost of pizza in this particular area. The end results of this research and demand analysis we should be able to determine if this would be a wise investment move to make on Domino’s behalf. Waynesboro is a fairly small town located in Burke County, GA. The current population for this town is about 5,781(www.city-data.com). The median income per household in my city from 2001 to 2011 has ranged from an estimate of about $27,166 to about $31,188 for the current day. The average cost of pizza from other pizza places over the years (2001-2011) ranged anywhere from $5.00 to about $18.00 depending on what you want and how you want it prepared. As far as household sizes they would range from about 1 person to about 5 people on average and the number of pizzas were hypothetically ordered were based on the number of people per household and how much income they were making. The more kids that are in a household the better the chances are of ordering pizza since it is no secret that kids love pizza. Another factor to consider would be single individuals who work long hours......

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...Demand Estimation Jasmine P ECO 550 Professor Sumadi May 3, 2015 Compute the elasticities for each independent variable. Note: Write down all of your calculations. QD = - 5200 - 42P + 20PX + 5.2I + .20A + .25M P = 500 PX = 600 I = 5500 A = 10,000 The quantity demanded is calculated as: Qd = -5200 – 42(500) + 20(600) + 5.2(5500) + 0.2(10000) +0.25(5000) = 17,650 Calculate Price Elasticity: Price Elasticity = (P/Q) * (Dq/Dp) = (500/17650) * (-42) = -1.19 Calculate other independent variables: Cross Price Elasticity, Epx = (600/17650) * (20) = 0.68 Income Elasticity, EI = (5500 / 17650)* (5.2) = 1.62 Advertisements Elasticity, EA = (10000 / 17650)* (0.20) = 0.11 Micro-oven Elasticity, EM = (5000 / 17650)* (0.25) = 0.07 Determine the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Provide a rationale in which you cite your results. Since the price elasticity is -1.19, this is considered a luxury good. The demand for this product is elastic indicating a 1% increase in the price. Long-term, hopefully this doesn’t stir customers away being that the price increased. Cross-price elasticity is 0.68, which means that any increase in price of the competitor’s widget will increase by 1% and the demand will increase by 0.68%. This is inelastic to the company since the competitor’s widget has no effect on the company’s sales in the long-term. Advertisement elasticity is 0.11...

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...(6.2) (2.5) (0.09) (0.21) Qd= -5200 – 42(500) + 20(600) + 5.2(5,500) + .20(10,000) + .25(5,000) Qd= -5,200 – 21,000 + 12,000 + 28,600 + 2,000 + 1,250 = 17,650 Price of the product elasticity= -42(500/17,650)= -1.19. The price of the microwaveable food product is elastic, meaning that the price of the product will affect the demand. As the price of the product increases, the demand for the frozen microwaveable food will decrease as well as if the price of the microwaveable food decreases, the demand for them will increase. Cross elasticity= 20(600/17,650) = .68. The cross elasticity, or the price of the leading competitive product, is positive, implying that they are substitute products. However, the elasticity is less than 1, which suggests that they are not necessarily good substitutes and the competitor’s price has little impact to the product sales. Per capita Income elasticity= 5.2(5,500/17,650) = 1.62. The product is income elastic. This would indicate that the product is a luxury product and will be responsive to income fluctuations. Advertising elasticity= .20(10,000/17,650) = .11. The product is inelastic with respect to advertising. An increase in advertising will have a very small effect on product sales. For instance, if we increased advertising by 10%, we would only see approximately a 1.2% increase in product sales. =-5200-42*(500) +20*(600) +5.2*(5500) +0.2*(11000) +0.25*(5000) = 17850 Number of Microwaves sold elasticity=......

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