1. (21 points) Demand across the two locations

After talking your managerial economics class, you realize that you can probably raise your profits by price discriminating by charging different prices in the two locations. You then breakdown sales across the two locations

In Laredo: You sold 200 burger meals per week at $9 and 100 meals at $10

In San Antonio: You sold 1200 meals per week at $9 and 1100 meals at $10

a. Using the two prices above, estimate your demand function in Laredo. What would demand be at the optimal price from Q1?

b. Using the two prices above, estimate your demand function in San Antonio. What would demand be at the optimal price from Q1?

c. Calculate the point price elasticity of demand at the optimal price for Q1 (and quantity from part A) in Laredo

d. Calculate the point price elasticity of demand at the optimal price for Q1 (and quantity from part B) in San Antonio

e. Assuming that your marginal costs are $3, are you charging more, less, or exactly the optimal price in Laredo

Hint: Calculate the markup on price and compare it tofrom the earlier question

f. Assuming thatyour marginal costs are $3, are you charging more, less, or exactly the optimal price in San Antonio

g. Based on your analysis, describe how you should adjust prices in Laredo and San Antonio

****Answers from prior question

You are running a (small) chain of gourmet burger joints with two locations (San Antonio and Laredo)

You have been charging $9 for your burger meal (fries, burger and soft drink). Across both locations, you sell 1400 meals per week at this price

When you raised the price to $10 for the burger meal, your sales across the two locations fell to 1200 meals per week.

For your costs, you have fixed costs of $3000 per week across the two locations. In addition, it costs you three dollars per burger in variable costs (ingredients, labor etc.)

a.What is your combined cost function across the two locations

TC=3000+3Q

b. Using the two prices above, estimate your combined demand function across the two locations

P=16-0.005Q

c. Using the combined demand function from the previous question, calculate the profit maximizing price and quantity

9.5

d. (3 points) What are your (combined) weekly profits across the two locations?

5450