Production Cost Analysis and Estimation Applied Problems

Production Cost Analysis and Estimation Applied Problems

Antoinette Barber

BUS 640 Managerial Economics

Instructor Kunsoo Choi

October 20, 2014

Consumer Demand Analysis and Estimation Applied Problems

When analyzing consumer demand and estimating the probability of performance for a business, it may be helpful to use the weighted scoring method onto each of the desired attributes. The Department of Finance and Personnel define this method as:

A form of multi-attribute or multi-criterion analysis. It involves identification of all the non-monetary factors (or "attributes") that are relevant to the project; the allocation of weights to each of them to reflect their relative importance; and the allocation of scores to each option to reflect how it performs in relation to each attribute. The result is a single weighted score for each option, which may be used to indicate and compare the overall performance of the options in non-monetary terms. (para. 5)

Problem 1a. According to the information given in problem 1, taste is three times as important as location and two times as important as price if she opens a restaurant in suburban Los Angeles. Considering this information and using the weighted scoring method, the weights for the three attributes can be calculated as follows:

Taste = 6/(6 + 2 + 3) = 6/11

Location = 2/(6 + 2 + 3) = 2/11

Price = 3/(6 + 2+ 3) = 3/11

The total expected utility for opening a Steak restaurant in suburban Los Angeles:

= 6/11 * 80 + 2/11 *55 + 3/11 *65 = 71.36

The total expected utility for opening a Pizza restaurant in suburban Los Angeles:

= 6/11 * 70 + 2/11 *80 + 3/11 *50 = 66.36

Based on the total expected utility, it would be best if she opened a Steak restaurant in suburban Los Angeles.

Problem 1b. According to the problem location is three times as important as taste and two times as important as price if she opens a restaurant in Los Angeles metropolitan area. The weights for those three...