Transcript Chipolteway - Washington University in St. Louis

Greg Gerold
Harry Wong
ESE 251
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Open 70 hours a week
Taxes/ Rent … -> 2000 USD per week
Labor Cost -> 10 USD/hr
Weighted average cost of all items -> 2.53
USD/item
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WAP (weighted average price) of 6.50 USD
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40 items were sold per an hour and 6 people were
required
WAP of 7 USD

20 items were sold per an hour and 4 people were
needed
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Profit = total revenue – total cost
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@ $6.50 = $4,916
@ $7.00 = $1,463
Is there a price regime within the range that
maximizes profit?



Q
(
p
r
i
c
e
)

L
k
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Cobb - Douglas Equation
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Based on least squares regression fitting of statistical
data.
  are constants with respect to time.
Beta =1 as K is constant
L = man hours
K= capital (rent, taxes…)
Y = productivity factor
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Algebraic solution
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Two regimes two unknowns
Y= 0.0000484
alpha=1.71
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Profit = Total Revenue – Total Cost
Optimal at:
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0 = Marginal revenue – Marginal Cost
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Assume demand can be modeled by:
P(Q) = a – b*Q
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7.00=a - b * 1400
6.50=a – b * 2800
Solve two simultaneous linear equations
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a= 7.49, b=0.000357
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There are two solutions within the domain
 One is 2 burritos a week
 The other is 11,120 burritos
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So plugging in this quantity to the Profit
equation we get:
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$6574/week
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Labour
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13.5 employees working 70 hour weeks
944 total hours
Pricing
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$3.97
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Sensitivity
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Price
Quantity
What if?