Demand of Burger King - Managerial Economic

7/31/2019 Demand of Burger King - Managerial Economic

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ECO 556 MANAGERIAL ECONOICS 2011

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

Demand of Burger King - Managerial Economic

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