Will the price increase be enough to offset the rise

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Question: You work for a kolache shop in Aggieville, Texas. Your boss wants to raise the price of kolaches from $10 a dozen to $12 a dozen to account for an increase in the cost of ingredients but isn't sure of the effect this will have on the amount of kolaches the shop sells. The shop currently sells 500 dozen in a week. Since you have an economics background, your boss tasks you with finding out the new quantity demanded of kolaches given the price increase. What is the answer (new quantity demanded) for your boss given that the own price elasticity of demand for kolaches is -0.80? Also, will the price increase be enough to offset the rise in the cost of the ingredients (given that the cost of ingredients went up $0.25 per dozen and cannot be avoided by substitution)? Show your work.

Reference no: EM133556971

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