Question

1. Consider the market for Papa John’s pizza in Macomb. Regression analysis provides a demand and supply equation as follows:

                                                       Q_PJ=1000 – 250P_PJ + .15m + 60P_PH -90P_B

Where:

P_PJ = price of Papa John’s Pizza                   

m=income                                         

P_PH = price of Pizza Hut Pizza                      

P_B = price of breadsticks

1. Interpret the coefficient for the price of pizza hut pizza assuming it is statistically significant?
2. Determine the simplified demand equation for Papa John’s pizza at current market values: m=$25,000; P_PH= $12; P_B=$5.
3. Calculate the x and y-intercepts for demand and plot them on a graph below. Show the factors held constant or underlying assumptions.
4. If the price of pizza hut pizza increases to $15, then determine the new simplified equation for sales of papa john’s pizza. Graph this on your graph above.
5. In words, explain what is happening in your graph (did the entire demand shift? in which direction? And why?)

Answer 1