Consumer Demand Analysis and Estimation Applied Problems

Sandra Snow-Hinkson

BUS 640

Zhimin Huang

June 26, 2016

 

 

 

 

 

 

 

 

Problem 1:

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.
TABLE 1

Suburban LA

Metropolitan LA

 

 

 

Attribute

Steak Restaurant (r1)

Pizza Restaurant (r2)

Steak Restaurant (r1)

Pizza Restaurant (r2)

r1 with a .5 probability

 r2 with a .5 probability

EU of each option

Taste

Location

Price

Rate for each option

80 = 295

55*3 = 165

65*2 = 130

590

70 = 340

80*3 = 240

50*2=100

680

80*3 = 240

55 = 370

65*2 = 130

740

70*3=210

80 = 310

50*2=100

620

80*.5 = 40

55*.5 = 27.5

65*.5 = 32.5

 

70*.5 = 35

80*.5 = 40

50*.5 = 25

75

67.5

57.5