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Maximization of Profits

A trendy French 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.

a. In the short run (next few months), what measures should the restaurant take to maximize its profits? Explain.
b. In the long run (next six months and beyond), how can it maximize its profits? (Assume that the impressive state of demand is permanent).

Solution Preview

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

One of the problems with the restaurant is that we can assume there is a shortage of supply. We know this because the restaurant is located in a "small corner of a commercial building," and also because there are "lines of diners waiting for tables most nights." If supply exceeded demand, we wouldn't have diners waiting, they'd all be seated and ...

Solution Summary

This solution explains the measures that should be taken in the short run and in the long run. Both questions are fully discussed.

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