6) Suppose you took over a grocery store and try to find out the optimal quantity of chicken McNuggets you have to order from suppliers, as well as setting the right price for the chicken in your grocery store. You found the following data points from the previous grocery store owner:

Per capita consumption (in an arbitrary time interval): 70lbs/person

Price: $0.7/lb.

Price elasticity of demand: e = -0.55

Note, that this is the consumption for a price of $0.7. Assume that the inverse market demand is linear, i.e., Q^d=a-bP.

a) Assume first that you offer the chicken McNuggets for a price of $1, instead of $0.7. How many nuggets should you offer p=$1?

Solution

b) In general, how many chicken McNuggets should you offer for any arbitrary price p?

Solution