After two years in the Smith School, you decide to open a Starbuck's Coffee in College Park. Your business does very well for the first year as you have average sales of 1,000 cups of coffee a day for $2 per cup. However, "Smoothie King" lowered the price of its Smoothie King smoothies from $3 to $2 and, one month later, "Java Head Cafe" lowered the price of its coffee from $2 to $1. Now you are only selling 500 cups of coffee a day

a. If the cross-price elasticity of Starbuck's coffee relative to price changes in Smoothie King smoothies is 0.5, what is the cross-price elasticity of Starbuck's coffee relative to price changes in Java Head Cafe coffee? N

b. Which of your competitors' moves has more of an impact on your sales? Why?

c. You then decide to start offering Starbuck's smoothies to diversify your line of business and compete "head on" with "Smoothie King." What would you expect to happen to your coffee sales? Why?