Essay on Week 2 assignment

874 Words Apr 27th, 2015 3 Pages
BUS640: Managerial Economics
Professor John Sellers
2015

1.a. Which of the two options should Patricia pursue if she wants to open a restaurant in a suburban area of Los Angeles? Calculate the total expected utility from each restaurant option and compare.
Patricia has predetermined that 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. Therefore, the total expected utility for a suburban restaurant can be described as:
TEU = Taste(3) + Price(1.5) + Location(1)
Now we need to plug in her ratings for attributes for both steak and pizza restaurants:
TEU (Steak) = 80(3) + 65(1.5) + 55(1) =
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The demand function for Newton’s Donuts has been estimated as follows:
Qx = -14 – 54Px + 45Py + 0.62Ax
Where Qx represents thousands of donuts; Px is the price per donut; Py is the average price per donut of other brands of donuts; and Ax represents thousands of dollars spent on advertising Newton’s Donuts. The current values of the independent variables are Ax = 120, Px = 0.95, and Py = 0.64. 2.a.

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