Chipolteway - Washington University in St. Louis

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?

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