After you complete your MBA you decide to open a restaurant, named FastFood. Fas
ID: 1177247 • Letter: A
Question
After
you complete your MBA you decide to open a restaurant, named FastFood.
FastFood is a fast food restaurant with a very limited menu. It serves only a
steak sandwich on a whole-wheat roll plus a salad with any beverage of the
customer%u2019s choice. Normally the sandwich, salad and beverage meal sells
for
$12.00
and the average number of
meals sold per month is
7,000
But FastFood would like to increase its volume,
so this month it cut the price to
$10.00
With the price cut the sales
volume of meals increased to
8,000
Question set A
1. What is FastFood%u2019s
elasticity of demand?
2. Is demand elastic,
inelastic, or neither?
3. What does elastic,
inelastic, or neither tell us about the elasticity of demand?
4. Why does this matter?
5. Have FastFood%u2019s profits
increased or decreased as a result of the price cut?
6. By how much?
7. Was the price cut a
success or failure?
8. What price should FastFood
charge next month?
$10.00
or
$12.00
9. Why?
Question set B
FastFood would be willing to
sell this many meals per month
10,000
Provided that the average
price per meal is
$14.00
1. What is FastFood%u2019s
elasticity of supply?
2. What number of meals is
FastFood likely to sell at a price per meal of
$14.00
3. Should FastFood change its
price per meal to
$14.00
4. Why or why not?
Question set C
1. Airlines charge lower fares
to flyers who make a Saturday night stopover, or who make flight reservations
at least two weeks in advance. They charge even lower fares to standby
passengers. Explain how these pricing policies relate to elasticity of demand.
2. Some stores give senior
discounts and student discounts. Do these pricing policies relate to
elasticity of demand in the same way that that the airline pricing policies
above do?
3. Explain why they do or do
not.
Explanation / Answer
The attached Word document contains the worked solution to all the problems.
The solution is clear and concise.
Thank you.