Rehana, owner of Skinny's Burgers in Weatherford, Texas decides to estimate the empirical demand function for...

  

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Rehana, owner of Skinny's Burgers in Weatherford, Texas decides to estimate the empirical demand function for her firm's burgers. She collects data on the last 24 months of Burgers sales from her own firm records. She knows the price she charged for her Burger during that time period, and she also has kept a record of the prices charged by one of her close competitors, Whataburger. Rehana is able to obtain average household income figures from the Small Business Development Center in Weatherford. The only other competitor in the neighborhood is the local franchise of Whataburger. Rehana is able to find the price of Whataburger for the last 24 months from advertisements in old newspapers. She adjusts her price and income data for the effects of inflation by deflating the dollar figures, using a deflator she obtained from the Survey of Current Business. To measure the number of buyers in the market area (N), Rehana collected data on the number of residents in Weatherford. As it turned out, the number of residents had not changed during the last 24 months, so Rehana dropped N from her specification of demand. Since the price of burgers at Skinny's Burgers in Weatherford set by Rehana- she possesses a degree of market power- she can estimate the empirical demand equation using linear regression. Rehana first estimates the following linear specification of demand using the 24 monthly observations she collected: Where: Q= a + b (P) +c (M) + d (PWB) - e P(ff) Q= sales price of a burger at Skinny's Burgers P= price of a burger at Skinny's Burgers M= average annual household income in Weatherford, TX Pwe= price of a burger at Whataburger restaurant Pff price of French fries sold by Skinny's Burgers The following computer printout shows the results of ordinary least-squares (OLS) regression: Variable Parameter Estimate Standard Error Intercept P M PWB Pff 183.80 -21.42 4.09109 10.30 - 7.84 306.29 13.48 1.80 38.74 2.099 Rehana decides to calculate estimated demand elasticities at values of P, M, Pwe, and P that she feels "typify" the Burgers market in Weatherford for the past 24 months. These values are: P= $7.50, M= 25 (in thousands), Pws- $8.25, and P= $1.50 Using this information, answer the following questions: a. Estimate the total number of sales using the equation specified above with the empirical results b. Calculate own-price elasticity, income elasticity and cross-price elasticities with Whataburger and French-fries. Besides statistical skills, Rehana also comprehends economics and is relying on you to make interpretations of these results. c. Based on the data in table and using the Rule of 2, identify which coefficients are statistically significant and which are not-show all calculations d. Using economic rationale and terminology, make recommendation to Rehana: a) If she should raise or lower the price she is selling and explain why b) The impact of the economy heading into a recession on Rehana's sales c) What will be the impact on the sales of French-fires when Rehana raise the price of burgers by 20%? Rehana, owner of Skinny's Burgers in Weatherford, Texas decides to estimate the empirical demand function for her firm's burgers. She collects data on the last 24 months of Burgers sales from her own firm records. She knows the price she charged for her Burger during that time period, and she also has kept a record of the prices charged by one of her close competitors, Whataburger. Rehana is able to obtain average household income figures from the Small Business Development Center in Weatherford. The only other competitor in the neighborhood is the local franchise of Whataburger. Rehana is able to find the price of Whataburger for the last 24 months from advertisements in old newspapers. She adjusts her price and income data for the effects of inflation by deflating the dollar figures, using a deflator she obtained from the Survey of Current Business. To measure the number of buyers in the market area (N), Rehana collected data on the number of residents in Weatherford. As it turned out, the number of residents had not changed during the last 24 months, so Rehana dropped N from her specification of demand. Since the price of burgers at Skinny's Burgers in Weatherford set by Rehana- she possesses a degree of market power- she can estimate the empirical demand equation using linear regression. Rehana first estimates the following linear specification of demand using the 24 monthly observations she collected: Where: Q= a + b (P) +c (M) + d (PWB) - e P(ff) Q= sales price of a burger at Skinny's Burgers P= price of a burger at Skinny's Burgers M= average annual household income in Weatherford, TX Pwe= price of a burger at Whataburger restaurant Pff price of French fries sold by Skinny's Burgers The following computer printout shows the results of ordinary least-squares (OLS) regression: Variable Parameter Estimate Standard Error Intercept P M PWB Pff 183.80 -21.42 4.09109 10.30 - 7.84 306.29 13.48 1.80 38.74 2.099 Rehana decides to calculate estimated demand elasticities at values of P, M, Pwe, and P that she feels "typify" the Burgers market in Weatherford for the past 24 months. These values are: P= $7.50, M= 25 (in thousands), Pws- $8.25, and P= $1.50 Using this information, answer the following questions: a. Estimate the total number of sales using the equation specified above with the empirical results b. Calculate own-price elasticity, income elasticity and cross-price elasticities with Whataburger and French-fries. Besides statistical skills, Rehana also comprehends economics and is relying on you to make interpretations of these results. c. Based on the data in table and using the Rule of 2, identify which coefficients are statistically significant and which are not-show all calculations d. Using economic rationale and terminology, make recommendation to Rehana: a) If she should raise or lower the price she is selling and explain why b) The impact of the economy heading into a recession on Rehana's sales c) What will be the impact on the sales of French-fires when Rehana raise the price of burgers by 20%?

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Here are the answers to Rehanas questions a Estimate the total number of sales using the equation specified above with the empirical results Q 18380 2... View the full answer