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Words 1144

Pages 5

STUDENT: RICHARD CONGLETON

ECO 550

MANAGERIAL ECONOMICS AND GLOBALIZATION

ASSIGNMENT 1

DR. RAFAEL AMIEL

25 OCTOBER 2012

Making Decisions Based on Demand and Forecasting

Independent and Demographic Variables

The goal of this study is to conduct a pizza demand analysis to determine the viability of opening a Domino’s Pizza outlet in Philadelphia, Pennsylvania in the area of zip code 19107.

The proposed demand function contains five independent variables as follows:

Qd = f(Pz, Pb, Pc, I, N) where

Qd is quantity demanded. This is the dependent variable we will have to estimate.

Pz is the price of pizza. This is the most important variable in determining the quantity demanded of pizza. By the law of demand, we expect it to have a negative relationship with Qd.

Pb is the price of burgers, which are a substitute good to pizza. It is an important part of the equation, because as prices change, people tend to shift consumption to the relatively cheaper substitute good.

Pc is the price of soda. As a close complement to pizza, a difference in the price of soda is likely to have an effect on the consumption of pizzas.

I is the income level, as measured by annual salary. It measures the ability of consumers to afford pizza. Annual income data is taken from Bureau of Labor Statistics.

N is the population size. Its importance for demand is clear as a higher population means a higher potential customer base. Data is taken from the US Census Bureau.

For our particular zip code area of interest, Pz is $8, Pb is $6, Pc is $2, I is 25,000 and N is 12,122.

Regression Analysis

To construct a credible regression analysis based on the formula previously mentioned, we need a good number of observations. Using the proposed demand function, data is assembled for the independent variables for each of the 67 counties in Pennsylvania. This…...

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