Refer to Oriental Express in E7-42B. Since franchising Oriental Express, the restaurant has not been very successful due to Noodles Plus coming on the scene as a competitor. To increase its market share, Oriental Express will have to lower its sales price to $5.00 per bowl. At the same time, Oriental Express hopes to increase each restaurant’s volume to 7,000 bowls per month by embarking on a marketing campaign. Each franchise will have to contribute $500 per month to cover the advertising costs. Prior to these changes, most locations were selling 6,500 bowls per month.
1. What was the average restaurant’s operating income before these changes?
2. Assuming the price cut and advertising campaign are successful at increasing volume to the projected level, will the franchisees earn their target profit of $3,500 per month?