demand of burger king - managerial economic
TRANSCRIPT
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TABLE OF CONTENTS
NO PARTICULARS PAGE
1 INTRODUCTION 2 5
2 MODEL / EQUATION 6
3 METHODOLOGY 7 - 10
4 FINDINGS AND INTERPRETATION OF COEFFICIENT
4.1 Interpretation of Coefficient
4.2 Evaluation of statically significant variable
4.3 - Interpretation of F-statistic
4. 4 - Coefficient of determination ( )
4.4 Range of Actual Value
4.5 - Interpretation of standard error of estimate
11 - 15
5 CALCULATION OF ELASTICITY
6.1 Price Elasticity of Demand
6.2 Cross Elasticity of Demand
6.3 Income Elasticity of Demand
6.4 Advertising Elasticity of Demand
16 - 17
6 CONCLUSION 18 - 19
7 REFERENCES 20
8 APPENDIX 21
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1.0 INTRODUCTION
BACKGROUND COMPANY
Burger king started in 1954, when James McLamore and David Edgerton opened their first
restaurant in Miami, Florida. Their experience in restaurant business offering reasonably prices
quality food, served quickly, in attractive, clean surroundings. In 1957, people were introduced to
the new flavor of the Original Whopper. At that time, it was selling for only 37 cents. This product
was become famous in short time and then made the BURGER KING concept of franchise success
and spread rapidly throughout the 1960s and in 1963 the first international restaurant opened in
Puerto Rico.
The early BURGER KING restaurants distinguished themselves from others by their self-
serve ordering and outdoor patio seating. Burger King Corporation pioneered dining rooms in the
fast food industry and decided to close its patio seating in 1957. BURGER KING introduced their
customers with comfortably eat their food at the table inside the restaurant. Eighteen years later, in
1957 their innovation began with drive-thru service. In 1958, BURGER KING Corporation started
their first major promotion with their first television commercial with The Bigger the Burger, the
Better the Burger, that debuted in1968. In 1974 the memorable HAVE IT YOUR WAY
campaign was created. In the late 1990s, the tremendously popular Food and Music television
campaign set a new standard for advertising worldwide.
Vision: We proudly serve the best burgers in the business, plus a variety of real, authentic, all
freshly prepared, and just the way you want it.
Values: Fairness, Diversity, Respect, Caring, Clear Accountabilities, Teamwork, High Standard,
Commitment to Excellence, Celebrating our Successes.
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BURGER KING IN MALAYSIA
The first Burger Kings Restaurant was located at Overhead Bridge Sg. Buloh in December
1997. Its operated with the different management group that operates under a new franchisee. It
was officiated by our former Prime Minister Y.A.B Tun Dr. Mahathir Mohamad. Now, there are
20 restaurants in that operated in Malaysia.
There are currently, 3 franchise holders in Malaysia. The largest operating restaurant is
managed by Cosmo Restaurant Sdn. Bhd. While outlets located in KLIA are under the
management of Dewina Hosts Sdn. Bhd. Another franchise is Living Bread Sdn. Bhd. those
manage outlets in Sabah.
Started in 1960s, the first interior concept was featured with artists such as Marilyn
Monroe, Elvis Presley, James Dean and vintage cars photos. Burger King now, use the concept to
carters the customer requirement for the trendy, modern and more relaxing. Burger King caters to
customers who love great tasting burgers, their way.
PROBLEM STATEMENT
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Nowadays, fast food had becomes popular among people. Fast food, such as hamburgers
can be prepared and served very quickly and can be prepared in the short time. It can be served to
the customer in a packaged for take away, and now can be easily got through drive-thru and
delivery services, and no wonders hamburgers demand increasing from year to year.
Burger king restaurant offers variety of hamburger that are popular throughout world. As a
restaurant that offers hamburgers to people, there are several reasons that can effects the changes
of quantity demand of hamburgers purchased. Which is price of our hamburgers, price of other
hamburger, peoples income and advertising expenses on promoting our product?
Price of our hamburger is one of the factors that can make demand change. People will
expect for reasonable price for the product that they purchase. If price of burger king suddenly
increase, they would probably more prefer switch to another hamburger such as McDonalds
burgers, Wendys burgers or other competitors.
Another factor that arises in changes in Burger King Demands is price of other hamburger.
If the price of our hamburgers remained the same while the price of other restaurant of hamburgers
fell dramatically. It will effect on the demand for our hamburger, because there are other substitute
products such as hamburgers from others restaurant or competitors. When customer wants to eat
hamburgers see that the price of Burger King increase, they may not eliminate to eat hamburgers
but they will certainly start eating other hamburgers such as McDonalds burger.
Changes in income can also change overall demand for a product or service. As people's
incomes rise, they demand more goods and services. They also demand better goods and services
the good things in life. When peoples income fall, they demand fewer goods and services and
when income increase, people demand will be increase. We assume that our hamburger is among
normal goods. Normal goods are those for which demand increase as income rise.
The last factors that can effects the total demand of our hamburgers is advertising. When
Burger King increases their advertising expenditure, means that we are trying to promote our
products in order to attract our customers towards to rise our hamburgers demand. When our
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advertisement such as Free Soft Drink, When you buy a Whopper. It can increase the demand of
our hamburger, because advertisements play an important role in order to attract people.
RESEARCH OBJECTIVE
To investigate the factors of changes in our price, price of competitors, income and advertising will
effects the total quantity demand for hamburgers.
2.0 MODEL / EQUATION
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Q = a + b P + b Pz+
b Y + b A
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From the SPSS analysis the result shows :
a = -3,624.513
b = -565.120
b2 = 4,321.381
b3 = 0.065
b = 1.316
So, the equation is :
Where :
Q = Quantity of Burger King hamburger purchased per week
P = Price of Burger King hamburger
Pz = Price of other hamburger
Y = Real income (RM)
A = Advertising expenses (RM thousand)
F Statistic = 2.794
SE = 461.631
R2 = 0.504
3.0 METHODOLOGY
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Q = -3,624.513 - 565.120P + 4,321.381Pz +
0.065Y + 1.316A
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Methodology can properly refer to the theoretical analysis of the methods and appropriate
to a field of study or to the body of methods and principles particular to a branch of knowledge.
Research methodology is what the research doings ,how to go on the research ,how to evaluate
progress, and what constitutes success .it also provides us an advancement of wealth of human
knowledge ,tools of the trade to carry out research ,tools to look at things in life objectively
;develops a critical and scientific attitude ,disciplined thinking to observe objectively which are
scientific deductions and inductive thinking ,skills of research particularly in the age of
information .the research methodology is a science that studying how research is done
scientifically .It is the way to systematically solve the research problem by logically adopting
various steps. Also it defines the way in which the data are collected in a research project.
Data collection methods are an integral part of research design. There are 2types of data
collection method which are primary and secondary data. Primary data is the data is derived from a
new or original research study and collected at the source. Data observed or collected directly from
first- hand experience. Published data and the data collected in the past or other parties is called
secondary data for this assignment ,we are going to use secondary data collection methods which
are refer to information gathered by someone other than the researcher conducting the current
study. Such data can be internal or external to the organization and accessed through the internet or
perusal of recorded or published information. As there are too many information in secondary data,
we had been used only several which are book, journal or article and internet sources.
i. Book
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Set or collection of written, printed, illustrated, or blank sheets, made of paper parchment .or
other various material, usually fastened together to hinge at one side. In this research the book that
had been used in order to complete the assignment is Managerial Economics Eighth Edition which
are written by Christopher R. Thomas, S. Charles Maurice and published M.C. GRAW.HILL
INTERNATIONAL EDITION , RATIONAL DECISION MAKING FOR MANAGERS An
Introduction which are written by Sarah Keast and Michael Towler published by A John Wiley and
Sons Ltd. Publication.
ii. Article or Journals.
A non fictional literary composition that forms an independent part of a publication, as of a
newspaper or magazine. Journals defines as many publication, issued at stated intervals, such as
magazines, or scholarly pacific journals, academic journals, or the record of the transactions of a
society, are often called. Although journal is sometimes used, erroneously, as a synonym for
magazine, in academic use, a journal refers to a serious, scholarly publication, most often peer-
review. A non-scholarly magazine written for an educated audience about an industry or an area of
professional activity is usually called a professional magazine.
iii. Internet Sources
The publicly available worldwide system of interconnected computer networks that transmit
data by packet switching using a standardized Internet Protocol (IP) and many other protocols. It is
made of thousands of smaller commercial, academic, and government networks. It carries various
information and services, such as electronic mail, online chat and the interlinked web pages and
other documents of the World Wide Web.
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What is SPSS?
SPSS is a popular statistics program used in a variety of scientific disciplines. It is
composed of two facets, the statistical package itself and the SPSS language, a system of syntax
used to execute commands and procedures. Likewise, there are two approaches to using SPSS: (a)
via the menu system and point-and-click approach and (b) via the use of SPSS programming
syntax. Most users will find a combination of these approaches most effective in carrying out their
data analyses. At the University of North Texas, we have obtained the licenses of the software for
Windows and Mac OSX. In this series, we will focus on SPSS for Windows, which is a complete
data analysis program with many capabilities and applications. The requirements for PCs and
Macs are as follows
While Excel is a very useful business tool, it has limitations and now that it can handle
large datasets, you also need help to manage this data. IBM SPSS Advantage for Microsoft Excel
gives you advanced tools to more efficiently and effectively manage and analyse business datasets.
IBM SPSS Advantage for Microsoft Excel puts the right tools at your fingertips, enabling you to:
1) Conduct RFM analysis
2) Easily identify groups
3) Find unusual data
4) Prepare and transform data
5) Save Excel tables to native IBM SPSS data files
6) Operating systems supported: Windows family
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Advantages.
SPSS offers a user friendliness that most packages are only now catching up to. It is popular, and
though that is certainly not a reason for choosing a statistical package, many data sets are easily
loaded into it and other programs can easily import SPSS files. As of version 16 and 17 it now is
compatible with R and Python (assuming they are installed on the machine), which can give it the
functionality it otherwise lacks or would be too clunky in its own syntax.
Disadvantages.
For academic use SPSS lags notably behind SAS, R and even perhaps others that are on the more
mathematical rather than statistical side for modern data analysis (e.g. robust and bootstrapping
approaches available easily conducted elsewhere are non-existent or very difficult to do, basic tests
of analytical assumptions are often not available). Its menu offerings are typically the most basic
of an analysis and sometimes lacking even then, and it makes doing an inappropriate analysis very
easy. The default graphics are poor and not easily customizable to make them better. It is
expensive, sometimes ridiculously so (e.g. many of its add-ons are free elsewhere or part of the
base install for other packages), and even when you do buy you're really only leasing, and its
license is definitely not user friendly. There are often compatibility issues with prior versions.
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4.0 FINDING AND INTERPRETATION OF RESULTS
4.1 Interpretation of the coefficient
Price of Burger King hamburger (P)
When the price of hamburger increases by RM1, quantity demand for hamburger will decrease by
565.120 units.
P is negative sign. The sign of coefficient is consistent with the economic theory.
Price of other hamburger (Pz)
When the price of other hamburger increase by RM1, quantity demand for the hamburger will
increase by 4,321.381 units.
Pz is positive sign. The sign of coefficient is consistent with the economic theory.
Real income (Y)
When the income increase by RM1, quantity demand for the hamburger will increase by 0.065
units.
Y is positive sign. The sign of coefficient is consistent with the economic theory.
Advertising expenses (A)
When the advertising expenses increase by RM1, quantity demand for the hamburger will increase
by 1.316 units.
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A is positive sign. The sign of coefficient is consistent with the economic theory.
4.2 Evaluation of statically significant variable at 95% confident level
T- value =
T-Statistic Table :
Variable T-statistic Significant/Not Significant
P [565.120 / 1,128.821]
= 0.501 < 2.201
Not Significant
Pz [4,321.381 / 2,432.334]
= 1.777 < 2.201
Not Significant
Y [0.065 / 0.136]
= 0.478 < 2.201
Not Significant
A [1.316 / 1.420]
= 0.927 < 2.201
Not Significant
Based on the rule of thumb, the critical t-value which is at 2.201 at 95% confidence interval, the
following variables statistically significant in explaining the changes in demand for hamburger
(Q) : the price of hamburger (P), price of other hamburger (Pz), real income(Y) and advertising
expenses (A) are not statistically significant in explaining the changes in demand for hamburger.
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Estimated Coefficient
Standard Error of
Coefficient
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i. Because of the ratio of P is lower than 2.201, the t-value is concluded that there is
not significant relationship between price and demand for Burger King hamburger.
ii. Because of the ratio of Pz is lower than 2.201, the t-value is concluded that there is
not significant relationship between price of other hamburger and demand for
Burger King hamburger.
iii. Because of the ratio Y is lower than 2.201, the t-value is concluded that there is not
significant relationship between income and demand for Burger King hamburger.
iv. Because of the ratio A is lower than 2.201, the t-value is concluded that there is not
significant relationship between advertising and demand for Burger King
hamburger.
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4.3 Interpretation of F-statistic
F-Value : = R/ (k-1)
(1-R)/(n-k)
= 0.504 / (5-1)
(1-0.504) / (16-5)
= 0.126
(1-0.504) / (16-5)
= 2.794
The F-statistic is 2.794 < 3.3567 F-tables [k-1/n-k = 5-1/16-5] (critical value).
At 95% confident interval there is a not significant relationship between dependent variable and all
the independent variables.
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4. 4 Coefficient of determination ( )
Coefficient of determination, : 0.504
50.4% changes in quantity demand of hamburger is explained by the all changes in the
independent variables. Another 49.6% is due to the changes in other factors not included in the
model.
4.5 Interpretation of standard error of estimate
Standard error estimation : 461.631
Q = -3,624.513 - 565.120P + 4,321.381Pz + 0.065Y + 1.316A
P = 0.99 Pz = 0.95 Y = 16,505.50 A = 579.38
= -3,624.513 565.120 (0.99) + 4,321.381 (0.95) + 0.065 (16,505.50) + 1.316 (579.38)
= 1,756.65
Q t-value (SE)
= 1,756.65 2.201 (461.631)
Upper Range :
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Q t-value (Standard Error
Estimation)
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= 1,756.65 + 2.201 (461.631)
= 2,772.70
Lower Range :
= 1,756.65 - 2.201 (461.631)
= 740.60
At 95% confident interval with the given values for price, income and price of competitor, the
sales will range between 740.60 and 2,772.70.
5.0 CALCULATION OF ELASTICITY
Q = -3,624.513 565.120P + 4,321.381Pz + 0.065Y + 1.316A
P = 0.99 Pz = 0.95 Y = 16,505.50 A = 579.38
Q = -3,624.513 565.120 (0.99) + 4,321.381 (0.95) + 0.065 (16,505.50) + 1.316 (579.38)
= 1,756.65
Price Elasticity of Demand
= -565.120 x 0.99 / 1,756.65
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x
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= - 0.32 < 1 : inelastic of demand
Therefore, increase in price will increase in total revenue.
When price increase by 1%, the QD will decrease by 0.32%.
Income Elasticity of Demand
= 0.065 x 16,505.50 / 1,756.65
= 0.61 0 : Substitute goods
Therefore, when price of competitor increase by 1%, the Qd Burger King hamburger will increase
by 2.34%.
Advertising Elasticity of Demand
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x
x
x
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= 1.316 x 579.38 / 1,756.65
= 0.43 < 1 : Advertising has small impact on demand.
6.0 CONCLUSION
From the study we can conclude that the regression equation for the impact on the demand
for hamburgers cannot be accepted. There are three criteria that should be concern in order to know
whether the estimated demand function is can be acceptable or not. First, which is it need to
comply is the most of the independent variable must be consistent with the economic theory. The
second criteria is most of the independent be significant accordingly to the result of T-test and the
last criteria is high R2. The regression cannot be accepted because R2 which is 0.504 (50%) lower
than 60%. Most variables are not significant and the variables are not consistent with the economic
theory.
Based on the rules of thumb, the critical t-value which is at 2.201 at 95% confidence
interval, the following variables statically significant in explaining the changes in demand for
hamburger (Qx): the price of hamburger (P), real income (Y), price of other hamburger (Pz) and
advertising expenses as the compute t-value (0.501,1.777,0.478 and 0.927) is lower than 2.201.
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On the other hand, price of other hamburger (Po) are not statistically significant in
explaining the changes in demand for hamburger. While for the coefficient of determination (R2),
there is 81.2% of changes in quantity demand of hamburger are influences by the all factors in the
function of (P), (Pz), (Y) and (Adv). Another 18.8 % is due to the changes in other factors not
included in the model.
The interpretations of standard error of estimate are showing the result of (2,772.70, 740.60). This
is show the standard deviation of the differences between the actual values of the dependent
variables (results) and the predicted values. The demand curve function that we gain from the
equation model given is Qx = - 3624.513 565.120P + 4321.381Pz + 0.065 I + 1.316A
As for the last which are the calculation of elasticity, it was show that the price elasticity
demand for this product is inelastic demand. So, the customers are not sensitive towards the
changes of price, when price increase it will help increase in total revenue. Besides that, the
income elasticity demand, it shows that the products are necessity or normal good. While for the
cross elasticity of demand, it shows that the product are substitute good. So, when price of
hamburger increase people will then to buy other hamburger. Other than that is advertising
elasticity of demand has only small impact on demand.
Last but not least, R2 is lower than 0.60 which is 0.504, this is means that there is no
relationship between the dependent variables and independent variables. So to increase the value of
R2, we need added independent variables to the regression model. R2 will increase regardless of
whether or not the new variable has any explanatory power. Values closer to 1 imply that the
model has better explanatory power than models where the value is closer to 0.
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7.0 REFERENCES
Thomas C.R. & Maurice S. C (2005). Managerial Economics. New York: McGraw-Hill
Companies.
Keast S. & Towler M. (2009). Rational Decision Making for Managers. England: John Wiley &
Sons Ltd. Publication.
Xueming L. & Pieter J (2010). Does advertising really work? The intermediate role of analysts in
the impact of advertising on firm value.Journal of the Academy Marketing Science.
Author (2007). History of Burger King. Retrieved by 2011, 8 June at
http://www.burgerking.com.my/about_us.php
Wikipedia (2003). History about Burger King. Retrieved by 2011, 8 June at
http://en.wikipedia.org/wiki/BurgerKing
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http://www.burgerking.com.my/about_us.phphttp://en.wikipedia.org/wiki/Burgerhttp://www.burgerking.com.my/about_us.phphttp://en.wikipedia.org/wiki/Burger -
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Juyong . & Karpova (2010). The US and Japanese apparel of demand conditions: implications for
industry competitiveness.Journal of Fashion Marketing and Management. Vol 15 No 1 pp76-90.
8.0 APPENDIX