Assignment 1: Making Decisions Based on Demand and Forecasting



Assignment 1: Making Decisions Based on Demand and Forecasting

Introduction

Pizza is one of the most demanding food items in almost every part of the world. There are lots of restaurants who prepare pizzas and out of those restaurants Pizza hut is considered as the most recognized restaurants for pizza. There exist a majority of the people in the world which like pizza but simultaneously lots of people dislike it as well. So, if one plans to open a pizza restaurant in an area, one must go through the market research to analyze whether the demand for the pizza exist in that particular area or not. For this purpose, a statistical analysis has been done to determine the actual demand for pizza in a particular area containing almost 30 markets.

Method

The study consists of determining the demand for pizza in a particular area and for this purpose various variables have been used. First of all, two major variables determined from the law of demand i.e. prices of pizza in different markets of the area and secondly it respective demand. The initial phase of study will involve a simple regression analysis keeping the quantity demanded for the pizza as the dependent variable and simultaneously prices of the pizza being the dependent variable. After this analysis, few other variables will also be taken in the analysis which according to the economic theory can significantly affect the demand for the pizzas in an area. Other variables include competitor's prices for the pizzas, advertisement cost for the pizzas and similarly the income of the consumers which also directly affects the demand (Washburn, 1974).

The study will further verify the economic theory in this study about the demand law i.e. prices of the competitor must have a positive relation with the demand of the local pizza. Similarly, it is a known fact that higher advertising certainly increase the sales as well as the demand for the commodity. On the other hand, the income of consumers also plays a positive role increasing the demand for the local good so as the demand for Pizza in our study. A regression analysis has been conducted on MS Excel to determine the regression line, its respective coefficient of determination and similarly the significance of the overall model using the f - statistics (Vincent, 1976).

Results and discussion

The initial results of the demand equation show that there is only 17.2% association of the quantity demanded for pizzas and its relative prices. The relation is certainly not very significant as the prices are explaining the demand for pizzas adequately.

Regression Statistics

Multiple R

0.415835835

R Square

0.172919441

Adjusted R Square

0.14338085

Standard Error

31279.95029

Observations

30

ANOVA on the other hand, shows highly significant results as f - statistic is found highly significant [f = 5.854, p = 0.0222]. Thus, from the results we can conclude that the overall model is significant i.e. law of demand exist for the pizza market in the particular area.

ANOVA

 

df

SS

MS

F

Significance F

Regression

1

5727777661

5727777661

5.854017857

0.022285904

Residual

28

27396188127

978435290.2

Total

29

33123965787

 

 

 

The resulting coefficient of price follows the law of demand ...