Economics assignment

Saint John’s School

ECONOMICS ASSIGNMENT

|Student: |Joaquín Arretx |
|Teacher: |Alan Ripley |
|Date: |05 / 10 / 2009 |

PRICEAND COSTS -
A RESTAURANT’S PROBLEM

a) The owner’s weekly premises and equipment (fix cost) cost’s £120, the food and fuel cost’s £544 and he pay his waiters £914. The restaurant’s income is 1360,so that less the running costs results £446, which is the owner’s net weekly income.

b)

c) The total profit he makes on Mondays is £60, against the running costs which are £64. So his Monday’sprofit is -£4. Indeed, these are losses, but if he closes, he’ll loose even more, because he’ll have losses of -£20 that belongs to the fixed cost (premises and equipment).

d) First, the new profitof both days:
Monday: £88
Tuesday: £160

Now, the change in quantity demanded in both days:
Monday: 83.3% change in Qd
Tuesday: 33% change in Qd

The change in price, which is the same forboth days, is -20% change in price.

So the PeD for each day:
Monday: 83.3% change in Qd = -4.1 (elastic)
-20% change in P
Tuesday: 33% change in Qd = -1.65 (elastic)-20% change in P

So, on Monday’s PeD there’ll be a greater elasticity than on Tuesday, even though both are elastic. This could be because no one has a big interest in going out on Mondays andTuesdays, but as prices gets lower people will start going more. Also, there’s a difference between Monday and Tuesday, because as there’s more demand on Tuesdays and less on Mondays, as more people(5 in average) go each day, the bigger difference will be noticed on Mondays.

e) If the owner decides to charge different price on different days, he could have the risk of reducing the number ofpeople going on the more common days, which are Fridays and Saturdays. This could end with losses for the owners, so it wouldn’t be so convenient do charge different each day.

f) The total cost of...