ECONOMICS 303 NAME _________________________
McBurger hires you as a consultant to advise on its best strategy. You estimate monthly demand for its burgers to be:
Q
d = 26, XXXXXXXXXX,000P + 4,000P
c -.8Y + 0.5A
where the independent variables are respectively: P, price of McBurger’s burgers, P
C, price of competitors' burgers, Y, per capita income, and A, McBurger’s advertising budget. You observe that competitors have, on average, priced their burgers at $3.50, while McBurger charges $2.50. Per capita income level in the store's geographic market is $15,000. McBurger's advertising expenditure is $20,000 per month. McBurger currently sells 13,000 burgers/month.
1. How much revenue does McBurger currently earn based on the information above?
2. Is McBurger maximizing its revenues
under current conditions? [Grading here is based solely on your calculations.]
3. Based on the data given, McBurger should _______________ its advertising expenditure.
Possible answers: a)
raiseb)
lowerc)
not changed)
we cannot say4. What advice can you offer McBurger, based on the above information?
Document Preview: ECONOMICS 303 NAME _________________________
McBurger hires you as a consultant to advise on its best strategy. You estimate monthly demand for its burgers to be:
XXXXXXXXXXQd = 26, XXXXXXXXXX,000P + 4,000Pc -.8Y + 0.5A
where the independent variables are respectively: P, price of McBurger’s burgers, PC, price of competitors' burgers, Y, per capita income, and A, McBurger’s advertising budget. You observe that competitors have, on average, priced their burgers at $3.50, while McBurger charges $2.50. Per capita income level in the store's geographic market is $15,000. McBurger's advertising expenditure is $20,000 per month. McBurger currently sells 13,000 burgers/month.
1. How much revenue does McBurger currently earn based on the information above?
2. Is McBurger maximizing its revenues under current conditions? [Grading here is based solely on your calculations.]
3. Based on the data given, McBurger should _______________ its advertising expenditure.
Possible answers: a) raise
b) lower
c) not change
d) we cannot say
4. What advice can you offer McBurger, based on the above information?