I restaurantbar decides to lower price of beer by 050 by

Reference no: EM13452535

A restaurant/bar is analyzing its pricing of beer. It has determined that the price elasticity of demand for beer is -0.8, the cross-price elasticity for wine with respect to the price of beer is -0.9, the cross-price elasticity for appetizers is 1.4 and the cross-price elasticity for entrees is 2.2. The current average price of a beer at this bar is $4.50 and the restaurant sells 250 pints of beer a night. The price of wine averages $8 a glass and in a typical night 40 glasses of wine are purchased. An appetizer is priced at an average price of $6 and an entree costs $12 on average. The average number of appetizers and entrees sold per night is 70 and 25, respectively. The marginal cost of a pint of beer is $2, an additional glass of wine sold increases costs by $5, an appetizer increases costs by $4 and an entree has a marginal cost of $7. If the restaurant/bar decides to lower the price of beer by $0.50, by how much does the firm's profit change and in which direction?

Reference no: EM13452535

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