Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 22

The owner of an Italian restaurant has just been notified by her landlord that the monthly lease on the building in which the restaurant operates will increase by 20 percent at the beginning of the year. Her current prices are competitive with nearby restaurants of similar quality. However, she is now c onsidering raising her prices by 20 percent to offset the increase in her monthly rent. Would you recommend that she raise prices? Explain.