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Assignment 1: Making Decisions Based on Demand and Forecasting

Managerial Economics and Globalization, ECO550

Making Decisions Based on Demand and Forecasting

A market demand analysis is used to help understand how much consumer demand there is for a given product or service. This type of analysis will help determine if a business can successfully enter a market and generate enough revenue and profit to maintain the business. One must identify the market and the growth potential. Domino’s Pizza was incorporated in 1963 and has been franchising since 1967. A traditional Domino’s store is located in shopping centers and/or strip malls with appropriate parking for delivery vehicles and walk-in customers for carry-out services. The initial investment of a traditional store is approximately $119,500 (low estimation). To determine if a Domino’s Pizza can be opened in Morehead City, North Carolina one must estimate consumer demand for this area. Some of the variables that can be considered are population, price of pizza, and income per household. The population of Morehead City is 8,780 people; let’s assume that 40% are eating pizza, so the demand will be 3,512 people want pizza. Considering there are 365 days in a year we can assume that nine households are eating pizza each day, with an average of 3 people in the household let’s assume they normally order two pizzas, a total of 18 pizzas per day. The average income of a household in Morehead City is $28,737 and the average price of a Domino’s Pizza is $7.99 for a large (with no coupons or specials). We also know based on the city data collected that the population is growing at a rate of 1.4% per year, which is a positive and important aspect to a prospective business for growth when considering the area for location. Using a regression formula, the formula is based on: x

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