Question: answer all of the following questions gemmas kitchen is a...
Answer all of the following questions:
Gemma’s Kitchen is a small café based in Sydney that earns the majority of its income from the burgers it produces and sells. The arrival of COVID-19 has brought financial hardship for the café, as it has for many other retailers and restaurateurs.
Question 1 One of the main ingredients in the burgers Gemma’s Kitchen makes is beef. As a result of the severe Australian drought, combined with changes in global demand and the arrival of the pandemic the cost of beef has increased significantly (see Cornish 2021). At the same time, the pandemic has led to a significant drop in customer numbers visiting the café. With the aid of supply and demand diagrams explain the effect of these changes on the equilibrium price and quantity of burgers sold by Gemma’s Kitchen. (Hint: consider how the relative size of the change in demand compared to supply will affect the equilibrium price and quantity.)
(a) Assume that when the price of burgers increases by 15%, the number of burgers demanded declines by 20%. Using this information explains how the price elasticity of demand for burgers can be calculated and interpret the result.
(b) Suppose you are a financial advisor to Gemma who is the owner of Gemma’s Kitchen. Gemma comes to you seeking some financial advice regarding how she might increase the revenue generated by her café by altering the price she charges customers for the burgers she makes. What would you advise her? Should she raise or lower the price of burgers? With the aid of a diagram, explain with reference to the price elasticity of demand you calculated in Q2(a).
(c) Would a strategy of maximising the revenue, that the business earns, maximise Gemma’s Kitchen’s profits? Justify your answer and include an appropriate diagram as part of your response.
Question 3 The Australian Government has implemented several economic measures in response to COVID-19. As Gemma’s Kitchen is affected by the pandemic and is an employer of 3 workers, the business is receiving Job Keeper payments of $3,000 per fortnight to help the business continue to pay wages to its employees. These payments exceed the number of wages that Gemma (the owner) pays her workers by $500. Gemma has decided to keep the excess amount and use it to pay for other business-related expenses. From both the consequentialist and deontological perspectives, explain whether this is ethically justified.