ns $2$ and $3$ can be found in the chart below. Instructors could provide a copy of the chart without the answers populated for students to use as a worksheet.

What kinds of power does Starbucks hold over their suppliers in this case?

Use the double marginalization problem and solution guides to structure two alternatives:

Prices to consumers are maintained at $$8$ and profits are split $3$:$1$ in favor of Starbucks.

Prices are raised $25\%$ to $$10$ and profits are split $2$:$1$ in favor of Starbucks

$3.$ What are the resulting mark$-$ups for the manufacturer and retailer $($Starbucks$)$ under each scenario? How will suppliers and consumers respond to either scenario?

You can use the table below to illustrate your answers to questions $2$ and $3.$ Don't forget to explain your answers in words for your answer to count.

Current scenario

Scenario A

Answer

Scenario B

Answer

Price $$8\mathrm{.}00$

Split $3$:$1$

Price $$10\mathrm{.}00$

Split $2$:$1$

Manufacturer cost

$$2\mathrm{.}00$

Manufacturer mark$-$up

$$2\mathrm{.}00$

Retailer cost

$$1\mathrm{.}00$

Retailer mark$-$up

$$3\mathrm{.}00$

Price to consumer

$$8\mathrm{.}00$

Total margin $=$ $

Distribute $3$:$1$

Total margin $=$ $

Distribute $2$:$1$