Report

Greg Gerold Harry Wong ESE 251 Open 70 hours a week Taxes/ Rent … -> 2000 USD per week Labor Cost -> 10 USD/hr Weighted average cost of all items -> 2.53 USD/item WAP (weighted average price) of 6.50 USD 40 items were sold per an hour and 6 people were required WAP of 7 USD 20 items were sold per an hour and 4 people were needed Profit = total revenue – total cost @ $6.50 = $4,916 @ $7.00 = $1,463 Is there a price regime within the range that maximizes profit? Q ( p r i c e ) L k Cobb - Douglas Equation Based on least squares regression fitting of statistical data. are constants with respect to time. Beta =1 as K is constant L = man hours K= capital (rent, taxes…) Y = productivity factor Algebraic solution Two regimes two unknowns Y= 0.0000484 alpha=1.71 Profit = Total Revenue – Total Cost Optimal at: 0 = Marginal revenue – Marginal Cost Assume demand can be modeled by: P(Q) = a – b*Q 7.00=a - b * 1400 6.50=a – b * 2800 Solve two simultaneous linear equations a= 7.49, b=0.000357 There are two solutions within the domain One is 2 burritos a week The other is 11,120 burritos So plugging in this quantity to the Profit equation we get: $6574/week Labour 13.5 employees working 70 hour weeks 944 total hours Pricing $3.97 Sensitivity Price Quantity What if?