Answer 2 problems below. Ensure all questions are answered. Chart for problem 1 attached
Please complete the following two applied problems:
Patricia is researching venues for a restaurant business. She is
evaluating three major attributes that she considers important in her
choice: taste, location, and price. The value she places on each
attribute, however, differs according to what type of restaurant she is
going to start. 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. If she opens
a restaurant in the Los Angeles metropolitan area, then location
becomes three times as important as taste and two times as important as
price. She is considering two venues, respectively, a steak restaurant
and a pizza restaurant, both of which are priced the same. She has rated
each attribute on a scale of 1 to 100 for each of the two different
types of restaurants.
Show all of your calculations and processes. Describe your answer for each question in complete sentences.
- 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. Graph is not
required. Describe your answer, and show your calculations.
- Which of the two options should she pick if she plans to open a
restaurant in the Los Angeles metropolitan area? Describe your answer,
and show your calculations.
- Which option should she pursue if the probability of finding a
restaurant venue in a suburban area can be reliably estimated as 0.7 and
in a metropolitan area as 0.3? Describe your reasoning and show your
- Provide a description of a scenario in which this kind of
decision between two choices, based on weighing their underlying
attributes, applies in the “real-world” business setting. Furthermore,
what are the benefits and drawbacks, if any, to this method of decision
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
Show all of your calculations and processes. Describe your answer for
each question in complete sentences, whenever it is necessary.
- Calculate the price elasticity of demand for Newton’s Donuts and
describe what it means. Describe your answer and show your
- Derive an expression for the inverse demand curve for Newton’s Donuts. Describe your answer and show your calculations.
- If the cost of producing Newton’s Donuts is constant at $0.15
per donut, should they reduce the price and thereafter, sell more donuts
(assuming profit maximization is the company’s goal)?
- Should Newton’s Donuts spend more on advertising?