The burrito barn is considering a price reduction on the firegut burrito, which

Question

The burrito barn is considering a price reduction on the firegut burrito, which currently sells for $5.00. Jim, the owner of burrito barn, knows that the price elasticity of the firegut is roughly equal to -2.3 over the range of prices being considered for the change. The firegut has been selling at the brisk pace of 500 burritos per week. To increase his market share in the fast food market, Jim would like to increase sales of the firegut to 750 per week, what price should jim set? ( be specific and show your work).

Explanation / Answer

formula

Ep = (Q2-Q1) ( P1+P2) / (Q1+Q2) ( P2-P1)

Q2 = 750

Q1 = 500

Ep = -2.3

P1 = 5

plug in the values to solve for P2

-2.3 = 250 (5+P2) / (1250) (P2-5)

-2.3 *5 * (P2-5) = 5+P2

P2 = 52.5 / 12.5 = 4.16

so new price = $ 4.16

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.