The Coffee Revolution sells beverages in a variety of coffee flavours. Data for a recent week appear below:
Revenue (1,000 cups @ $1.78 each)$1,780
Cost of ingredients $640
Rent 500
Store attendant 360 1,500
Income $ 280
a)Suppose the company's policy is to set prices based on a 200% mark-up above variable cost. Calculate the cost-based price per cup.
b)Describe one disadvantage of the pricing policy described in part (a).
c)The manager estimates that if she were to increase the price of beverages from $1.78 to $1.90 each, weekly volume would be reduced to 850 cups. Estimate the profit-maximizing price per cup. Use the following values in your computations as needed:
ln (0.1)= -2.303 ln (0.85)= -0.163 ln (1.1)= 0.095
ln (0.15)= -1.897 ln (0.9)= -0.105 ln (1.15)= 0.140
d)Explain why the manager cannot be certain what volume of sales will occur if she increases the price to $1.90.
e)Should Coffee Revolution increase or decrease the current price? What advice can you give the manager on making these changes? Why?

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The Answer of The Coffee Revolution sells beverages in a variety of coffee flavours. Data for a recent week appear below:
Revenue (1,000 cups @ $1.78 each)$1,780
Cost of ingredients $640
Rent 500
Store attendant 360 1,500
Income $ 280
a)Suppose the company's policy is to set prices based on a 200% mark-up above variable cost. Calculate the cost-based price per cup.
b)Describe one disadvantage of the pricing policy described in part (a).
c)The manager estimates that if she were to increase the price of beverages from $1.78 to $1.90 each, weekly volume would be reduced to 850 cups. Estimate the profit-maximizing price per cup. Use the following values in your computations as needed:
ln (0.1)= -2.303 ln (0.85)= -0.163 ln (1.1)= 0.095
ln (0.15)= -1.897 ln (0.9)= -0.105 ln (1.15)= 0.140
d)Explain why the manager cannot be certain what volume of sales will occur if she increases the price to $1.90.
e)Should Coffee Revolution increase or decrease the current price? What advice can you give the manager on making these changes? Why?

The Coffee Revolution Sells Beverages in a Variety of Coffee