1. Greg Gerold Harry Wong ESE 251
“Mexican” fast food
Greg Gerold
Harry Wong
ESE 251

2. Model 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

3. Regimes WAP (weighted average price) of 6.50 USD WAP of 7 USD
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

4. Profit Profit = total revenue – total cost
@ $6.50 = $4,916
@ $7.00 = $1,463
Is there a price regime within the range that maximizes profit?

5. Model Cobb - Douglas Equation
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

6. Solutions Algebraic solution Two regimes two unknowns Y= 0.0000484
alpha=1.71

7. Optimization Profit = Total Revenue – Total Cost Optimal at:
0 = Marginal revenue – Marginal Cost

8. Marginal Functions

9. Demand Estimation Assume demand can be modeled by: P(Q) = a – b*Q
Solve two simultaneous linear equations
a= 7.49, b=

10. Finding the Optimal Solution
There are two solutions within the domain
One is 2 burritos a week
The other is 11,120 burritos
So plugging in this quantity to the Profit equation we get:
$6574/week

11. Logistics Labour Pricing 13.5 employees working 70 hour weeks
944 total hours
Pricing
$3.97

12. Analysis
Sensitivity
Price
Quantity
What if?