gourmet pretzels in a popular mall. As shop owner and operator, you have observed that your daily sales tend to follow a pattern that can be stated as: Q = 600 - 160PP + 1A - 25Ps + 6I where Q = unit sales of pretzels, PP = price of pretzels in dollars, A = advertising expenses, Ps = price of soda pop sold at your stand in dollars, and I = per capita income of customers in thousands of dollars. You are currently charging $1 per pretzel, spending $200 in advertising, charging $1 for a soda pop, and per capita income is $25,000.
Mom’s Pretzels is a fairly small firm selling gourmet pretzels in a popular mall. As shop owner and operator, you have observed that your daily sales tend to follow a pattern that can be stated as:
Q = 600 - 160PP + 1A - 25Ps + 6I
where Q = unit sales of pretzels, PP = price of pretzels in dollars, A = advertising expenses, Ps = price of soda pop sold at your stand in dollars, and I = per capita income of customers in thousands of dollars. You are currently charging $1 per pretzel, spending $200 in advertising, charging $1 for a soda pop, and per capita income is $25,000.
a. Compute price elasticity, advertising elasticity, income elasticity and cross-price elasticity.
b. You are currently paying $.90 to produce a pretzel (including cost for dough cost to bake, and wrapping). Is this the profit-maximizing price? Explain/show your math.
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