Estimation & Demand for Fast Food Meals

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ESTIMATION AND ANALYSIS OF DEMAND FOR FAST FOOD MEALS PURPOSE OF THE STUDY: The present exercise aims to develop a demand equation for Burger King as mandated by the firm. Two variables that explain the demand for Combination1 meals are price of the combination and the advertising spend on it. There are other factors that impact on demand but these are assumed to be constant for the period of the analysis. These include population, income levels and prices of competing meals at rivals like Mc Donalds. The first two are positively related to demand. We can expect that as income and/or population rises demand will rise. The effect of rivals’ prices is not so clear and can be a significant explanatory variable for demand. Data limitations do not allow us to use these variables. Price of the Combination is the most important variable that can impact on demand. As per the law of demand it is negatively related to demand. Higher is price, lower is demand. The amount of money spent can be expected to increase demand in a positive manner. Both these relations are borne clearly in the regression results. THE STATEMENT OF THE PROBLEM To begin with our exercise aims to test the above mentioned effects on demand. We can also check the statistical significance of the variables independently. We also check for the overall significance of both variables – price and advertising expenditure on demand levels. We start with a descriptive summary of the three variables given. Table 1 allows us to conclude: • The mean value for P is 3.506, for A it is 10008.94 and for Q it is 58918.86 • • • • Q and A are positively skewed, so that the highest occurring values are on the lower end. Prices are negatively skewed which implies that the prices with highest frequency are at the higher end of the range. The coefficient of variation is the

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