VU Profit Optimization in Coffee Pricing Spreadsheet – Description
You are uncertain how you should price your coffee and how inflation will impact your production cost. After some discussion with students and potential suppliers you believe weekly demand will vary according to the equation: Demand = 1200 – (200)*(Price). In other words, if a cup of coffee is priced at $5, demand will be 1200 – (200)*(5) = 200 cups.
Find expected weekly profit from running the stand under sales prices of $3, $3.50, $4, $4.50, $5, $5.50, and $6 per cup; as well as production costs of $1.25, $1.75, $2.25, $2.75 per cup.
Model the above problem in Excel. How does the profit maximizing price change as variable cost increases from $1.25 to $2.75 per cup? Explain (somewhere on your worksheet under your model).
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