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

What is inflation, Q. What is Inflation? Inflation between two points i...

Q. What is Inflation? Inflation between two points in time is defined as percentage increase of price index between these two points in time.  Comments: Price inde

Negotiations between customers, In 1999 Mercedes-Benz USA adopted a new pri...

In 1999 Mercedes-Benz USA adopted a new pricing policy, which it called NFP (negotiation-free process), that sought to eliminate price negotiations between customers and new-car de

The goals of macroeconomic policy, THE GOALS OF MACROECONOMIC POLICY  E...

THE GOALS OF MACROECONOMIC POLICY  Economic analysis attempts to explain why problems arise in the economy and how these problems can be dealt with. It is, therefore, indispens

Oil revenue on agricultural productivity, please,how do i relate keynesian ...

please,how do i relate keynesian theories on fiscal policy to the topic"impact of oil revenue on agricultural productivity?

Overnight interest rate of central banks, Overnight interest rate of Centra...

Overnight interest rate of Central banks When the central bank buys government securities, it purchases from many individuals, companies and institutions. Deposits and reserves

Changes in price promotion, An end-of-aisle price promotion changes the pri...

An end-of-aisle price promotion changes the price elasticity of a good from -2 to -3. If the normal price is $10, what should the promotional price be?

Traight-line or soyd depreciation, Some equipment that costs $1000.00 has a...

Some equipment that costs $1000.00 has a 5-year depreciable life and an estimated $50 salvage value at the end of time. Determine whether to use straight-line or SOYD depreciation.

Illustrate aspect depends on producers and consumers surplus, Illustrate th...

Illustrate the aspect depends onto producers and consumers surplus. a. How much advantage do producers and consumers receive by the existence of a market? b. How is the welf

Explain the term unit labor costs, An article published in Die Zeit on 25 M...

An article published in Die Zeit on 25 March 2010 analyses the German policy that allows for only moderate increases in wages. According to this article, the unit labor costs in Ge

Lewis model, what is the relevance of the lewis model

what is the relevance of the lewis model

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