2. Draw a graph of the pricing model for Coca-Cola and the change that happened when beet and cane sugar prices jumped. Be sure to show the shift in the appropriate curve and how this affected the equilibrium price. (10 pts.)

The Coca-Cola company and input costs In [935, the CocaCola company made a well-publicized change in its formula for Coke. The company touted the change with a huge marketing campaign. In fact, the formula for Coke. Had been quietly changed six years earlier. Because of worldwide shortages, the price of' beet and cane sugarjumped from [9 cents per pound in September 19'\"; to 26 cents per pound in January 1979. While such a price hike does not dramatically affect most sugar buyers, for Coke it was catastrophic. A change of 1 cent per pound in sugar prices can cause a $20 million dollar swing in Coke's operating prots. The bottling empire is America's largest sugar buyer, taking a million tons per year, or about It] percent of all the sugar sold in the United States. Because of the efciencies of'corn production in this country, a sweetener made by rening corn into sugar makes high-fructose corn sWeeteners about ll] percent cheaper than beet and cane sugar when prices are normal. By using a 55% fructose sweetener, CocaCola can realize substantial cost savings, particularly when sugar prices are abnormally high. Coke publicly announced the switch to corn sweeteners in January IQTQ, but other than sugar producers and traders, no one seemed to notice. Eight months later, T-Up followed suit and decided to increase its use of corn sweeteners, and Pepsi also consider such a move. The response of'the soft drink companies to the increased price of sugar is typical of any rm faced with a price hike for an input. Firms try to reduce the use of inputs whose prices rise in order to maintain prots or to avoid having to raise the price of' their products (and risk losing sales to competitors). The greater the increase in the price of an input. the more incentive there is for a protmaximizing firm to conserve its Use of that input. Please answer the following questions on a separate sheet of paper: I. Wi'lat type of market structure is Coca-Cola a part of (competitive, monopoly, monopolistic competitive, or oligopoly It\"? Be runs- 10 thoroughly expitrin time this marker is identied and iron: thoijitr ("nee-Coin company's market. [1\" pts.} 2. DrawagraphofrepricmgmodelfmCmauCohmdiechangemthappenedwhen. bacteria! cane sugar pmsjmpdemmmihciomwwmmmmm Wicsguihdmm. {It} .113.) 3. Please discuss {in detail} why it is important to find inputs that reduce costs. Be sure I0 thoroughly erpt'oin your answer. using ienninoiogy and conceptrfrom the tertbooir. (10 pts.) 4. ml substitutes would consumers nd for CocaCola if they can't reduce costs?' Be sure to explain your onrteerriiorongnh'. {ll} FIR.) 5. TWhy didn't Coke just stay with sugar and raise the price of CocaCola? Bejm'fio inomugiriy explain your nnneer', tiring iermt'noiog' and conceptsfi'oin tire iexriiook. [It] pts.)