Chets Pizza is one of only two home delivery pizza firms serving Smallton, a small suburb of Big City, Colorado. The manager and owner of Chets Pizza, Ann Chovie, knows that her customers tend to be price-conscious. She competes for market share with Als Pizza Oven. There is a local McDonalds that also provides fast food in her market area. Ann is concerned that she is losing market share to Als Pizza and is considering several options. She believes she can boost market share by lowering her prices and boosting her advertising to better tap the total market potential of Smallton. She hires you as a market analyst to help her decide on the best marketing strategy for her marketing plan.

You gather data on sales over the last 24 months for Chets Pizza from Anns records. You have quantity and price information. Ann has kept track of Als Pizza Ovens prices as well. Ann has also kept track of McDonalds prices via newspaper ads and what is posted on the drive through lane. You call the local Small Business Development Center and gather income figures for Smallton as well. Ann also got population figures over this time period as well. One night when you are getting started on your analysis for Ann, you wind up in a chance meeting with a disgruntled former manager of Als Pizza Oven. He provides you with the pizza sales for Als over the last 24 months.

The chart provided to answer the question:

Questions:

Qchet is the quantity of pizzas sold by Chets Pizza. Pchet is the deflated price for Chets Pizza. M is the deflated monthly average income for residents of Smallton. Pal is the deflated price for Als Pizza. Pbmac is the deflated price for Big Macs at McDonalds. Pop is the population of Smallton, and Qal is the quantity of pizzas that Als Pizza has sold over the 24 month period.

3. Estimate a regression using Excel where Qchet = f(Pchet, M, Pal, Pbmac, Pop). To do this you must click on the data tab, then click on data analysis, highlight regression and click ok (If you do not have regression available under data analysis (for Office 2016 PC version) you must go to options, then under Excel add-ins, click on ToolPack, and ToolPack VBA). For the input y category click on Qchet at the top of the column. Holding down the shift key press the down arrow key until you highlight the entire column. For the input x range highlight the Pchet, M, Pal, Pbmac and Pop columns. Click the labels box. Click on output range. Highlight a very large area for the output to be written to. Click OK. Copy this output to your paper for this question. Is this regression equation explaining the variation in the Qchet well? Are the results consistent with what we would expect from demand theory?

4. Using the output pasted in question 3 estimate the elasticity of demand for Chets Pizza, the cross price elasticity for Als Pizza, the cross price elasticity for Big Macs, and the income elasticity of demand. Indicate whether Chets pizza faces an elastic or inelastic demand, whether Chets pizza is a normal good, and whether Big Macs and Als pizzas are gross substitutes or gross complements. For your calculations, use the appropriate variable averages over the 24 month period. Is the demand for Chets pizza more sensitive to a price change for Big Macs or Als pizza?

5. While working on the report for Ann, you find a newspaper article indicating that the opening of a credit card call center will provide jobs for 200 employees in Smallton. An economist predicts that average income of Smallton residents will increase by 1,000 and 500 new people will move to the community in 6 months. Forecast what the quantity demanded for Chets Pizza will be in six months, given this information. Use the latest population, price, and income information from month 24 for your forecast.