Question #71851

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)

Expert's answer

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.

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