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Savor the Sweet Bakery has been selling 550 boxes of cupcakes per month at a price of $19/box. When they raised their price to $21/box, they sold only 450 boxes.
1) What is the price elasticity of demand for Savor the Sweet's cupcakes?
2) If the marginal cost is $14 per box of cupcakes, was the price increase a profitable decision? Why or why not?
3)Based only on the information in this question, would you recommend they change their price again? If so, why and in what direction? If not, why not?
4) Suppose several other bakeries opened up nearby and sold cupcakes similar in quality and taste to those of Savor the Sweet. How would this affect the elasticity of demand for Savor the Sweet cupcakes?
Describe how this change in the elasticity of demand would affect the price mark-up of Savor the Sweet's cupcake. (looking for specific number)
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