Part A)
The cafe manager estimates that daily demand for cakes is represented by
Q = 121.67 – 6.67P where:
P = price per cake in dollars
Q = number of cakes sold per day.
Current average daily sales of cakes are 60. What price is the cafe currently charging for cakes?
Part B)
The store manager notices that a nearby store is charging $8.50 per cake, and is contemplating whether to match the price. Would the store lose revenue on cake sales if it charged $8.50? Use the mid-point method to calculate the price elasticity of demand.