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Sam is developing a business plan for starting Pizza business in Waltham. Sam specializes in pepperoni pizza. Based on the secondary data he has found out that there are 20,000 families in the area and about 20% of these families are strict vegetarians. He believes that he can get 10% of the market share of the potential customers. His research reveals an average family consumes 10 pizzas per year.
Dough costs $5 per pizza and annual lease for the plant is $16000. Sam is planning to introduce his Pepperoni pizza at $8 and raise the price by $2 in the second year. Price elasticity of demand for pizza is 0.50
a. Estimate the demand for Sam’s pizza in the first year.
b. Calculate the % markup (profit margin %) on sales price and total cost in the first year.
c. Estimate the demand for Pizza in the second year with the new price.
d. Calculate the % mark up on sales price and total cost in the second year.
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