Kate Austen must generate a sales forecast to convince the loan officer at a local bank of the viability of marina Del Rey, a trendy west-coast restaurant. Austen assumes that next-period sales are a function of current income, advertising, and advertising by a competing restaurant.
A. Write an equation for predicting sales if Austen assumes that the percentage change in sales is twice as large as the percentage changes in income and advertising but that it is only one-half as large as, and the opposite sign of, the percentage change in competitor advertising. Use the variables S = sales, Y = income, A = advertising, and CA = competitor advertising.
B. During the current period, sales total $500,000, median income per capita in the local market is $71,400, advertising is $20,000, and competitor advertising is $66,000. Previous-period levels were $70,000 (income), $25,000 (advertising), and $60,000 (competitor advertising). Forecast next-period sales.
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