Theatre Advertising

Ms Victoria Balakrishnan runs an adventure park. She wants to gain insight into the explanatory factors for the number of visitors to her park. Ms Balakrishnan has a year of daily observations for 2020 on the following variables: the day of the week, the temperature, prices (which are lower on, Monday, Tuesday, and Wednesday), social media advertising, competition with other leisure facilities, daily power consumption for her park, sales of food and beverages, sales of souvenirs, and staff costs. Ms Balakrishnan is unsure what is driving her visitors.

B1. Specify a linear (additive) model to predict number of visitors for Ms Balakrishnan. Explain the independent variables in the model and how they are defined.

B2. Ms Balakrishnan wants you to account for the brand awareness that is built up in the market as a result of her social media advertising. Explain to Ms Balakrishnan how you can incorporate this in the model you have developed and provide the equation.

B3. Explain what endogeneity is and identify one or more possible omitted variables from your model that could lead to endogeneity/omitted variable bias when not included.

Imagine that Ms Balakrishnan has now also invested in Outdoor advertising (i.e. billboards). She extended your model and found that the long-term elasticity for social media advertising is 0.035 and 0.085 for Outdoor advertising. The costs for social media advertising are $12 per day and for Outdoor advertising $110 per day.

B4. Determine the optimal proportions (i.e. %ages) of the advertising budget that she should allocate to outdoor advertising and social media advertising, based on the Dorfman-Steiner rule.