Answer to Question #66083 in Economics of Enterprise for Kari Stanislaus

Question

A trendy restaurant is one of the first businesses to open in a small corner of a commercial building still under construction. The restaurant has received rave reviews and has lines of diners waiting for tables most nights.

In the short run (next few months), what measures should the restaurant take to maximize its profit? Explain.

In the long run (next six months and beyond), how can it maximize its profit? (Assume that the impressive state of demand is permanent.

Answer 1

In the short run (next few months) the restaurant should measure its marginal revenue (MR) and marginal cost (MC) to maximize its profit, because profit is maximized when MR = MC = P.
In the long run (next six months and beyond), it will maximize its profit at the point, where MR = MC = P = LATC and it will receive zero profit.