Firms A, B, and C were all selling 1,000 cups of coffee per day at $3.50 per
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- Firms A, B, and C were all selling 1,000 cups of coffee per day at $3.50 per cup, and they wanted to experiment with pricing. The table below shows the change in sales as a result of their new prices; they made no other changes. Complete the table by calculating the revenue, cost of goods sold (COGS), and gross margin for each firm.
Firm | Price per Cup | Cups Sold | Revenue | COGS @ $0.35 per Cup | Gross Margin |
Baseline | $3.50 | 1,000 | $3,500 | $350 | $3,150 |
A | $3.00 | 1,150 | |||
B | $4.00 | 900 | |||
C | $2.50 | 1,450 |
- Coffee prices are going up, and Firm B is trying to decide whether to pass on to customers a cost increase of 10 per cupto $0.45 per cup. If raising the price from $4.00 to $4.10 reduces demand by 2%, should they do it? What if demand goes down by 4%?
- Lowering price does not always increase revenue with increased demand. Besides reducing price, what else can a firm do to stimulate demand for its product?
- Caf X is selling coffee in 3 different sizes at the prices and costs shown in the table below. They are considering raising the price of their small to $2.75, and they project that sales of smalls will go down while sales of mediums and larges will go up slightly. make a spreadsheet to calculate the projected change in gross margin based on the estimated changes in cups sold. Be sure to show all intermediate calculations.
Size | Price per Cup | Cost per Cup | Cups Sold | Est. Change in Cups Sold with Small @ $2.75 |
Small | $2.50 | $0.20 | 2,500 | -10% |
Medium | $3.50 | $0.35 | 1,500 | +6% |
Large | $4.50 | $0.50 | 800 | +3% |
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