Question

1. Starbucks sales about $1 million per store each year, or about $2,700 per store per day. McDonalds sell about $2 million, and Chick-Fil-A sells $4 million (open only 6 days). Assuming each has the same elasticity of demand of approximately 0.75, if each business offers a 5% discount…
   1. What will their new store sales be?

Answer 1

Current price = P

New Price = P*

dP = P* - P

P* = 95P/100

= > dP = 95P/100 – P

= > dP/P = -5/100

Now , the total demand is 1million for Starbucks

2million for McDonalds

4million for Chick Fil-A

Elasticity of demand = (dQ/Q)/(dP/P)

= > -0.75 = (Q* - Q)/Q/(-5/100);                         Q*= new store sales

For Starbucks:-

= > 0.75 *5/100 = Q*/Q -1

= > 0.75 *5/100 + 1 = Q* (10-5);                    Q=1 million

= > 37500 + 105 = Q*

= >Q* = 1037500

For McDonalds:-

= >0.75 * 5/100 = Q*/Q -1

= > 0.75 *5/100 + 1 = Q* (20-5);

= > 75000 + 205 = Q*

= > Q* = 2075000

For Chick Fil A:-

= > 0.75 *5/100 = Q*/Q -1

= >0.75 *5/100 + 1 = Q* (40-5);

= > Q* = 4150000