A caf with market power currently sells a cup of coffee for $1.50 per cup. At this price, the caf sells 80 cups per day. Suppose the caf completes a study that shows the price elasticity of demand for its coffee at $1.50 per cup is -0.6.

(i) Using the formula that relates marginal revenue to elasticity developed in class and economic reasoning, discuss why $1.50 cannot be the profit maximizing price.

(ii) Discuss whether the caf should raise or lower its price to increase its profits.