Answer to Question #71851 in Microeconomics for Chad Holiday

Question

Imagine you've started a new pizza restaurant. It costs you about $5 to produce a pizza.

Last week you sold 500 pizzas for $10 each.

This week you raised your price and sold 150 pizzas for $16 each.

What price should you be charging? (round to the nearest penny)

Answer 1

If it costs you about $5 to produce a pizza, last week you sold 500 pizzas for $10 each and this week you raised your price and sold 150 pizzas for $16 each, then demand for pizza is elastic, so you should decrease price to increase total revenue and you should charge price lower than $10 per pizza. But to find exact profit-maximizing price we should know information about marginal cost and revenue.