Lower price in restaurant, Macroeconomics

Assignment Help:

A restaurant/bar is analyzing its pricing of beer. It has determined that the price elasticity of demand for beer is 0.8, the cross-price elasticity for wine with respect to the price of beer is 0.9, the cross-price elasticity for appetizers is -1.4 and the cross-price elasticity for entrees is -2.2. The current average price of a beer at this bar is $4.50 and the restaurant sells 250 pints of beer a night. The price of wine averages $8 a glass and in a typical night 40 glasses of wine are purchased. An appetizer is priced at an average price of $6 and an entree costs $12 on average. The average number of appetizers and entrees sold per night is 70 and 25, respectively. The marginal cost of a pint of beer is $2, an additional glass of wine sold increases costs by $5, an appetizer increases costs by $4 and an entree has a marginal cost of $7. The restaurant is considering lowering the price of beer to $4.
1. What is the restaurant's profit (prior to the price change)?

2. Using the midpoint formula at the bottom of page 64, by what percent would the price of beer change? Using the price elasticity of demand and the approximation for the change in quantity on page 67, how many pints of beer would the restaurant sell after the price change?

3. Using the price change of beer and the cross-price elasticities, how many glasses of wine, appetizers, and entrees would the restaurant sell after the price change of beer?

4. What would the profit of the restaurant be after the price change?

5. Should the restaurant lower the price of beer to $4 based on your analysis?


Related Discussions:- Lower price in restaurant

Medium run adjustment - economy adjustment, Suppose the economy is currentl...

Suppose the economy is currently in recession, and the exchange rate if fixed using the IS-LM model. a) Explain and illustrate the economy adjustment (in the medium run) b) E

Customizing software for small construction companies, An engineer who was ...

An engineer who was in the business of customizing software for small construction companies repay a loan that she got 3 years ago at 7% per year simple interest. If the amount she

IS-LM, THE PRODUCT MARKET Z=C+I+G C=a+bYd I=Io+I1Y-I2i Equilibrium conditio...

THE PRODUCT MARKET Z=C+I+G C=a+bYd I=Io+I1Y-I2i Equilibrium condition, Y=Z, where Y represents output and Z is aggregate spending. THE FINANCIAL MARKET Md=MT+Mp MT=MTo+MT1Y Mp=Mpo

What do you mean by price index, Q. What do you mean by Price index? Be...

Q. What do you mean by Price index? Because we are only interested in percentage change of the price level and not particular value, we can divide every price level by a given

Construction of real gross domestic product, Q. Construction of real gross ...

Q. Construction of real gross domestic product ? To be able to make reasonable comparisons of GDP over time, we should adjust for inflation. For instance, if prices are doubled

Income elasticity, If 5000 units are sold and income increases by 20% with ...

If 5000 units are sold and income increases by 20% with an income elastiticy of +2, what will the number of sales units be after the increase

Company is researching the effectiveness, A company is researching the effe...

A company is researching the effectiveness of a new web site design to decrease the time to access a website. Five web site users were randomly selected and their times (in seconds

Liberalisation and changing sources of fdi, Liberalisation and Changing Sou...

Liberalisation and Changing Sources of FDI: European countries  had been major sources of FDI inflows  to India until 1990. However, their relative importance declined in the

European commission bail, Will the Euro survives? 1. Why are Greece, Ire...

Will the Euro survives? 1. Why are Greece, Ireland, Italy, Portugal, and Spain sometimes referred to as the euros zones "peripheral countries"? 2. Why did the European commis

Threaten the formal right to give blood, Singer suggests that although the ...

Singer suggests that although the right to sell blood does not threaten the formal right to give blood, it is incompatible with "the right to give blood, which cannot be bought, wh

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd