Making Decision Based on Demand and Forecasting

Parkville Maryland

Parkville is located in the state of Maryland in the Baltimore metropolitan area. Parkville is mainly located in the County of Baltimore with parts of it in Baltimore City County. Parkville is bordered to the south by Carney, which is primarily in the City and to the north by Perry Hall, Hampton, Overlea, and Towson, to the west, north and east. There are several Pizza establishments in the area an indication of demand of the product. However, it is important to establish the demand of the product using statistical analysis. In conducting this analysis, it is critical to take into consideration the demographics of the area including population and income per capita.

According to the United States Census Bureau (2010), the population of Parkville had gone up to 69752 from 69100 over the past decade. The Median Household Income in Parkville is $54,373 and can be socio-economically referred to as a Middle Class area in comparison to other areas in Maryland.

Demand Analysis

The demand analysis will take into consideration other variables other than population and household income of the Parkville. This study examines the speculative demand of Pizza (Y) the other variables include price of a medium size pizza; this is the price Dominos intend to sell their pizza and not the average price of pizza in the market. The price of soda is also critical in this analysis because pizza has traditionally been bought alongside soda. In this scenario, the unit will be a 20 Ounce soda. The analysis is done inputting this relevant data in Excel to estimate the demand for Pizza under two assumptions about what changes the quantity of Pizza demanded. The study therefore is meant to analyze the quantity demanded (Y) using regression analysis to estimate the coefficients of the demand function.

Regression Equation

Y = a + b1X1 + b2X2 + b3X3 +b4X4

Where:

Y = Pizza demand

X1 = medium size Domino pizza with two toppings at 7.99

X2 = Median Household Income $54,373

X3 = average price of a 20 Oz can of soda $1.05

X4 = Population of Parkville 69752

b1, b2, b3, b4 = coefficients of the X variables '

SUMMARY OUTPUT

Regression Statistics

Multiple R

0.516876852

R Square

0.26716168

Adjusted R. Square

0.671209343

Standard Error

1.075986466

Observations

30

ANOVA

df

SS

MS

F

Significance F

Regression

6

1.39747

0.25792775

Residual

23

Total

29

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

36.66685004

3.278084646

8.1348876

1.73E-08

19.9155131

33.418187

19.91551

33.41819

Price of Pizza

0.087750505

0.018062008

-4.858291

5.379E-05

-0.1249499

-0.050551

-0.12495

-0.05055

Median Household Income

0.138204092

0.086646076

1.5950416

0.1232685

-0.0402467

0.3166549

-0.04025

0.316655

Price of Soda

0.07589505

0.019225627

-3.947598

0.0005667

-0.1154909

-0.0362996

-0.11549

-0.0363

Population

0.54427859

0.884620096

-0.615268

0.5439383

-2.3661865

1.27762932

-2.36619

1.277629

In the evaluation of the statistical significance of the estimated coefficients this study will examine, Coefficients; Standard Error; Confidence Intervals; T-statistic; P-value and the overall fit of the regression line R-square and F-statistic. The main objective here is to estimate the demand for pizza and soda by the population of Parkville in Maryland. Here the demand Indicator is quantity of pizza and the drivers (factors which affect demand) are price of pizza; median household income; price of soda and population.

A close examination of the above summary output, it can be deduced that there is a positive coefficient in the first independent variable, which is the price of Pizza. This shows that there is a direct relationship between the Price of Pizza and Pizza demand variables. This is true across all the independent variables including Price of soda, Median Household Income as well as the population. This is an indication that the people of Parkville are more likely to respond positively to a Domino's pizza establishment.

The standard error in all the four variables is below 1.0, which is an indication that there was a small variation in the estimates given different data samples. This is a revelation of the measure of how much each of the variables estimated coefficient would vary in regressions based on their association with the demand of Pizza.

In any demand analysis, above 95% and below 95% values indicate the upper and lower limits of the 95% confidence interval for each estimated coefficients (Wood, 2012). Therefore, the ideal estimates of the coefficients are found within the confidence interval. In regard to the T test, the greater the value of t, specifically more than 2, the more the analyst can conclude that the estimated coefficient is significant at the 0.05 level. It can be therefore deduced from the analysis that the results obtained from the sample are consistent with the representation of the population. The P. value is the pointer towards the possibility of chance that the true coefficient is actually zero. In the above analysis, there is a greater P. value of the first variable and low on the other independent variables. It is upheld that the lesser the P-value for an estimated coefficient, the larger the confident the study is in estimates. Therefore, P-value of 0.05 or lower is considered adequate for a researcher to have confidence that the estimated coefficient is statistically significant. In this regard, the estimated coefficient of Median Household Income, price of soda and population, are considered statistically significant. It can be concluded that Domino's Pizza is most likely to grow if established in Parkville area of Baltimore, Maryland.