Lab Exercise 1. Taco Del Mar has completed a study of weekly demand for its tacos in Washington State's regional markets. The study developed the following demand function:
Q = 400 - 1,200P + 0.8A + 55Pop + 800Pc
where Q is the number of tacos sold per store per store per week;
A is the level of local advertising expenditure in dollars;
Pop is the local population in thousands; and
Pc is the average taco price of local competitors.
For the typical Taco Del Mar outlet, P = $1.35, A = $1,000, Pop = 40, and Pc = $1.00
Use the Lab 3 Excel file and program the elasticity worksheet (using the appropriate formulas) to answer the following:
a. Estimate the weekly sales for the typical Taco Del Mar (given the above information).
b. What is the current own price elasticity for Taco Del Mar tacos?
c. Should Taco Del Mar raise its taco prices? Discuss why or why not.
d. Using Excel calculate the marginal revenue if Taco Del Mar increases its taco price to $1.50.
e. Calculate the advertising elasticity for Taco Del Mar tacos.
f. Use the advertising elasticity to predict the change in Q from a 1% increase in advertising expense.
g. Use your demand function to calculate the change in Q from a 1% increase in advertising expense.
h. Calculate the cross price elasticity of local taco competitors.
i. Are the competitor tacos complements or substitutes? Discuss why or why not.