Question
A restaurant typically has the following costs and revenues. Rent is $12,000 per month. This must be paid whether or not the restaurant is open,
A restaurant typically has the following costs and revenues.
- Rent is $12,000 per month. This must be paid whether or not the restaurant is open, as long as the restaurant stays in business. If the restaurant owner decides to close permanently, she must pay a lease termination fee of $12,000.
- Fixed operating costs (utilities, the price of the chef, etc): $12,000 per month
- Variable operating costs (food and servers ): $50 per customer.
- When the chef is working at full capacity, he can serve 100 customers per night in-person; the restaurant is invariably full.
- The average customer spends $60.
In response to COVID-19, the City of Atlanta has mandated that restaurants can only operate at 50% capacity for in-person dining. There are no restrictions on take-out. The restaurant has calculated that it can sell each take-out meal for $25, with a cost per meal of $23, and for every two take-out meals it makes, the chef's capacity to produce in-person meals is reduced by one.
What is the optimal response of the restaurant owner, and how does it depend on how long the owner expects the mandate to last?
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