Example 1.

Calculate the price elasticity of demand for each of the following items. Using the price elasticity of demand, state an implication and verity your assertion with an appropriate follow up calculation.

Item	Original		Updated
	Price	Quantity	Price	Quantity
Super Burger	$4.95	450	$5.45	400
Golden Chicken	$6.45	800	$5.95	1,000
Ocean Delight	$6.45	600	$6.95	400

Answer:

Example 2.

A restaurant charges an average price of $20 per item and sells 5,000 menu items a month. Trying to increase revenue, the manager raises menu pricing to an average price of $21 and sells now 4,900 items. Was raising prices a good idea?

Answer:

Example 3.

12. Average check: $20
13. # of seats: 200
14. Annual fixed costs: $2,000,000
15. Average variable cost per check: $5

1. How many covers have to be sold in order to break even for the year?

Answer:

2. How many covers have to be sold in order to make a $100,00 profit?

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3. What is the revenue at the breakeven point?

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4. What revenue is needed at the $100,000 profit level?

Answer:

Example 4.

What is the level of sales required to achieve a 15% ROI on an investment of $10,000,000 for the following two department (i.e., food and beverage) restaurant while covering all costs?

12. Food generates 90% of sales with a contribution margin ratio of 0.70
13. Beverages generate the remainder of sales with a CRM of 0.50
14. The restaurants tax rate is 30%
15. Annual fixed costs amount to $1,000,000

Answer: