Consumer Demand Analysis and Estimation Applied
Problems. Please, complete the following 3 applied
problems in a Word or Excel document. Show all your calculations
and explain your results. Submit your assignment in the drop box by
using the Assignment Submission button. Patricia is researching venues for a restaurant business. She is
evaluating three major attributes that she considers important in
her choice: taste, location, and price. The value she places on
each attribute, however, differs according to what type of
restaurant she is going to start. If she opens a restaurant in a
suburban area of Los Angeles, then taste is the most important
attribute, three times as important as location, and two times as
important as price. If she opens a restaurant in the Los Angeles
metropolitan area, then location becomes three times as important
as taste and two times as important as price. She is considering
two venues, respectively, a steak restaurant and a pizza
restaurant, both of which are priced the same. She has rated each
attribute on a scale of 1 to 100 for each of the two different
types of restaurants.
Attribute
Steak
Restaurant
Pizza Restaurant
Taste 80
70
Location
55
80
Price
65
50
1a. Which of the two options should Patricia pursue if she
wants to open a restaurant in a suburban area of Los Angeles?
Calculate the total expected utility from each restaurant option
and compare. Graph is not required. Describe your answer, and show
your calculations.
1b. Which of the two options should she pick if she plans
to open a restaurant in the Los Angeles metropolitan area? Describe
your answer, and show your calculations.
1c Which option should she pursue if the probability of
finding a restaurant venue in a suburban area can be reliably
estimated as 0.7 and in a metropolitan area as 0.3? Describe your
reasoning and show your calculations
1d. Provide a description of a scenario in which this kind
of decision between two choices, based on weighing their underlying
attributes, applies in the real-world business setting.
Furthermore, what are the benefits and drawbacks, if any, to this
method of decision making?
Problem 2:
A Calculate the price elasticity of demand for Newtons
Donuts and describe what it means. Describe your answer and show
your calculations.
B
Derive an expression for the inverse demand curve for
Newtons Donuts. Describe your answer and show your
calculations. C
If the cost of producing Newtons Donuts is constant at
$0.15 per donut, should they
reduce the
price and thereafter, sell more donuts (assuming profit
maximization is the companys goal)? D.
Should Newtons Donuts spend more on
advertising? Purchase the answer to view it
The demand function for Newtons Donuts has been estimated as
follows:
Qx = -14 54Px + 45Py + 0.62Ax
where Qx represents thousands of bagels; Px is the price per
bagel; Py is the average price per bagel of other brands of bagels;
and Ax represents thousands of dollars spent on advertising
Newtons Donuts. The current values of the independent variables
are Ax=120, Px=0.95, and Py=0.64.
Show all of your calculations and processes. Describe your
answer for each question in complete sentences, whenever it is
necessary.
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