Cecil wants to open a coffee shop. After doing some market research he concludes that people value one of two things when deciding which coffee shop to go to: (1) convenient with lots of coffee-based drink options or (2) high-quality coffee with room for studying, working, or meetings. In the area where Cecil plans to operate, there is already one coffee shop, Kwik Koffee, which has a drive-thru window, very limited seating, and a large menu of different types of coffee.

Use the accompanying spectrum, which depicts the difference in consumer preferences for coffee shops and the location of existing cafés in the market, answer the following questions. Assume that consumers are equally distributed along the spectrum so that just as many consumers prefer the convenient option to the high-quality option to anywhere in the middle. 

a. If Cecil is only interested in capturing the largest number of customers in the coffee market, at which point should he position his coffee shop on the spectrum? 

b. If, instead, Cecil is only concerned that Kwik Koffee can undercut his prices when he opens, at which point should he position his coffee shop?  

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Kwik Koffee A Convenient with large menu Stevenson/Wolfers, Principles of Economics, 1e, Ⓒ2020 Worth Publishers B C D High quality with study/work space