Mba Deli Case
Damian MilesMBA Deli CasePrice Elasticity of Demand =Price elasticity of demand (PED) measures the responsiveness of demand after a change in price.Formula – PED = % change in Q.D (Quantity Demanded) % change in PriceCost of each meal $6The average number of meals sold per month is 7,000.Price is lowered to $5 per meal in October the number of meals sold increases to 8,000.PED = % change in Q.D (Quantity Demanded) % change in Price% change in Q.D = +1000/7000*100 = 14.28%% change in price = -1/6*100 = -16.66%PED =14.28/-16.66 = – 0.85This type of PED is coming negative it means it is inelastic demand
Revenue was = P*Q = 6*7000= $42000Revenue now = P*Q = 5*8000=$40000Thus revenue has lowered by $2000 as a result of price cut.b.) Beatrice has calculated the fixed costs for the Deli are $14,000 per month. Each meal costs is reduced to $2.50 from the original price of $6MBA Deli will sell 9,000 meals. The original Quantity was 7000PED = % change in Q.D % change in Price% change in Q.D = +2000/7000*100 = 28.57%% change in price = -3.5/6*100 = -58.33%PED =28.57/-58.33 = -0.48This type of PED is coming negative it means it is inelastic demand