How do restaurants price dishes?

We had a lovely early Valentine's dinner at Varanese last night. The beef tenderloin crostini starter was magnificent. The wife got the pecan encrusted Mahi-mahi over sweet potatoes and declared that she had the best dish. I had the Walleye on cream cheese grits--very good. We split a mocha creme brulee--I prefer unadulterated creme brulee, but this was quite good.

The entrees on the regular menu start about 16 and go up to 22. The specials started about 18 and went up to 30, I believe. The menu led me to wonder how prices are set at a finer restaurant? Do restaurants generally price the ingredients + the cost of preparation with a markup and price it there, or are there dishes that demand is high for and they can charge a premium above that? Or is the competition fierce enough in Louisville that one cannot charge a premium?

The Osso Buco looked really tempting, btw.

1 part product cost
1 part overhead/labor
2 parts chinese algebra

In a perfect world restaurants are running a food cost at about 30% - 33%, depending on the concept. Italian meaning lower, steak houses, and seafood being a littler higher. In theory if you have a dish priced at $21, that would cost the restaurant about $7 - $8 / serving to get the product in the door. Don't let that low number fool you though. Costs that also have to be equated are rent, insurance, labor, etc......in reality, if things are run right, on a $21 dish, a restaurant hopes to profit between, $2.10 - $2.50....now you see why comps, slow business, etc....can kill a quality eatery. Now more than ever, find ways to dine out as often as possible, so that we can keep Louisville "weird"....

At The House of Dead Cow I used to work at they made almost no $$ on the steaks at all as the cost was so high- but made all their money on the sides and the bar and still came in at 33% food cost.