Analysis of Pricing: You manage MBA Deli which sells meals at a price of $6 each. The average number of meals sold per month is 7,000. MBA Deli would like to increase its sales and profits. The MBAs running the Deli, know that if price is lowered, they will sell more meals. So they run an experiment. Price is lowered to $5 per meal in October and the number of meals sold increases to 8,000.
What is the Price Elasticity of Demand?
Is elasticity elastic, inelastic or neither?
What does this mean and why does it matter?
Will Revenues increase or decrease as a result of the price cut? By How much?
Beatrice has calculated the fixed costs for the Deli are $14,000 per month and each meal costs $2.50.Will profits go up or down as a result of the price cut? By How much?