The owners, see that after seeing the change in profits from the price decrease in March. They go back to a price of $8.50 and sell 21,000 meals in April. They decide that they are only willing to produce 21,000 meals at a price of $8.50. However, if they raised price to $9.50 per meal, they would be willing to produce 30,000 meals.
Calculate the Elasticity of Supply. Is it elastic or inelastic?
How many meals will Mt. Claire Café sell at $9.5 each? Hint: you can only sell what customers will buy. Use the original the elasticity of demand calculated in 1 above.
What will be the Revenue?
What will be the Profit?
Should Mt. Claire Café raise the price to $9.50? Why or why not?
What did you learn from this case? Post your response to this question in the discussion area.