Demand Estimation for the San Francisco Bread Company Consider the hypothetical example of The San Francisco Bread Compa

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Demand Estimation for the San Francisco Bread
Company
Consider the hypothetical example of The San Francisco Bread
Company, a San Francisco-based chain of bakery/cafes. San
Francisco Bread Company has initiated an empirical estimation of
customer traffic at 30 regional locations to help the firm
formulate pricing and promotional plans for the coming year.
Annual operating data for the 30 outlets appear in the attached
Table 1.
The following regression equation was fit to these data:
Qi = b0 + b1Pi +
b2Pxi + b3Adi +
b4Ii + uit.
Where:
Q is the number of meals served,
P is the average price per meal (customer ticket amount, in
dollars),
Px is the average price charged by competitors (in
dollars),
Ad is the local advertising budget for each outlet (in
dollars),
I is the average income per household in each outlet’s service
area,
ui is a residual (or disturbance) term.
The subscript indicates the regional market (i = 1,…, 30) from
which the observation was taken. Least squares estimation of
the regression equation on the basis of the 30 data cross sectional
observations resulted in the estimated regression coefficients and
other statistics as shown in Table 2.
Mean 598,412 6.93 6.16 244,649 51,044 Table 2 - Estimated Demand Function for the San Francisco Bread Company Estimated Standard Error Variable Coefficient of Coefficient t-statistic (1) (2) (3) (4) = (2)/(3) Intercept 128,740.913 69,966.782 1.840 Price (P) -19,864.901 4,102.111 -4.843 Competitor p 15,484.554 3,459.193 4.476 Advertising 0.260 0.094 2.767 Income (1) 8.782 1.017 8.639 Coefficient of Determination: R² = 83.3% Adjusted R² = 80.7% - F Statistic = 31.221 Standard Error of the Estimate = SSE = 14,865.898