Final answer:
To increase revenue at a sandwich shop, consider strategies such as adjusting sandwich prices, offering combo meal discounts, or adding new items, while being mindful of demand elasticity and menu costs.
Step-by-step explanation:
When determining how to increase revenue at a local sandwich shop, several strategies can be considered. Raising the price of sandwiches may lead to higher revenue per unit sold but it could also deter customers and reduce the quantity sold. Conversely, decreasing the price of sandwiches might attract more customers and increase the quantity sold, possibly offsetting the lower price and contributing to an overall increase in revenue. Implementing discounts on combo meals could encourage customers to purchase more items, potentially increasing overall sales. Lastly, adding new menu items can attract new customers and provide existing customers with more options, which may also contribute to an increase in revenue. Economics teaches us that due to the law of demand, price and quantity demanded are inversely related, as exemplified by the downward-sloping demand curve in the band example. Considering the elasticity of demand is crucial when adjusting prices; if the demand for sandwiches is elastic, lowering prices might be more beneficial. However, if the demand is inelastic, increasing prices could yield higher revenue. It is also important to consider the menu costs and customer reactions to frequent price changes. Optimal pricing strategies should take into account the balance between generating sufficient demand and maximizing profit margins for each unit sold.