Question

1.Administrators are contemplating selling coffee at the George two days out of the week. It is estimated that weekly demand follows Q = 200−50P +30PC where Q is the number of cups of coffee sold each week, P is the price of the coffee, and PC is the price of coffee at the Starbucks down the street. a) How many cups will be sold if P = $1.50 and PC = $2? b) Write down the equation for the George’s demand demand curve for PC = $2. c) If Starbucks increases the price of their coffee to $3, what is the effect on the George’s demand curve? (hint: how far will it shift?) d) Dean Djerdjouri has asked ECON 326 to help estimate a demand curve for coffee being sold at the George. The first step in this analysis is to use economic theory and your intuition on what the most important factors we should take into account when estimating demand. Other than the variables already included, list two other factors that we should include in our analysis and explain the effect you would expect these factors to have on demand.

Answer 1

Answer on Question 81444, Economics / Microeconomics

a) How many cups will be sold if P = $1.50 and PC = $2?

$$Q = 200 - 50P + 30PC$$ $$Q = 200 - 50 \cdot 1.5 + 30 \cdot 2 = 185$$

b) Write down the equation for the George’s demand curve for PC = $2.

$$Q = 200 - 50P + 30 \cdot 2 = 200 - 50P + 60$$ $$Q = 260 - 50P$$

c) If Starbucks increases the price of their coffee to $3, what is the effect on the George’s demand curve? (hint: how far will it shift?)

$$Q = 200 - 50P + 30PC$$ $$Q = 50 + 30PC$$

At a price equal to $3, the equation takes the above form, at a price lower the digital coefficient in the equation will be higher, that is, the curve shifts to the right / left with a decrease / increase in the price.

d) During the analysis, it is important to assess the presence of competitors - direct and indirect. Competitors can affect the number of sales.

Location and an important element of analysis at the level with the area of the premises and its quality indicators. These indicators affect not only the number of clients, but also their status.

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