1. Chez What recently opened a stand in between the Commons and the Library. They sell mostly breakfast items, particularly coffee, and croissants. The operators are particularly concerned about the demand for croissants. In an effort to assess the wisdom of their pricing strategy, they asked an economist client to estimate the demand for croissants sold at Chez What. He came with the following information. Q = 150-50P - 20Pc +30Pa Where P = the price of croissants, Pc = the price of coffee sold at Chez What, and P₁ = the price of coffee sold at the nearby Alpine bagel bakery a. Suppose that the price of coffee at Chez What is $1.5 and that the price of coffee at the Alpine Bagel Bakery is $2 per cup. Calculate the demand curve for croissants. Q= 150-50P-20(1.5)+30(2) Q=180-50P For parts b and c assume that the price of croissants is $1. b. Suppose that the price of croissants is $1. Calculate the point price elasticity of demand. Would Chez What increase profits by Raising the price of croissants? (Explain) ЕОР Raise Price?
1. Chez What recently opened a stand in between the Commons and the Library. They sell mostly breakfast items, particularly coffee, and croissants. The operators are particularly concerned about the demand for croissants. In an effort to assess the wisdom of their pricing strategy, they asked an economist client to estimate the demand for croissants sold at Chez What. He came with the following information. Q = 150-50P - 20Pc +30Pa Where P = the price of croissants, Pc = the price of coffee sold at Chez What, and P₁ = the price of coffee sold at the nearby Alpine bagel bakery a. Suppose that the price of coffee at Chez What is $1.5 and that the price of coffee at the Alpine Bagel Bakery is $2 per cup. Calculate the demand curve for croissants. Q= 150-50P-20(1.5)+30(2) Q=180-50P For parts b and c assume that the price of croissants is $1. b. Suppose that the price of croissants is $1. Calculate the point price elasticity of demand. Would Chez What increase profits by Raising the price of croissants? (Explain) ЕОР Raise Price?
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter3: Demand Analysis
Section: Chapter Questions
Problem 9E
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