QUESTION 1

Firms A, B, and C were all selling 1,000 cups of coffee per day at $3.50 per cup, but in the following week they all changed their prices. This gave their managers some information about the elasticity of demand in their local market, though they have to be careful to recognize that other factors might also have affected demand. The table below shows the change in sales as a result of their new prices; they made no other changes. Complete the table by calculating the revenue, cost of goods sold (COGS), and gross margin for each firm.

Firm	Price per Cup	Cups Sold	Revenue	COGS @ $0.35 per Cup	Gross Margin
Baseline	$3.50	1,000	$3,500	$350	$3,150
A	$3.00	1,160	$	$	$
B	$4.00	890	$	$	$
C	$2.50	1,520	$	$	$

Coffee prices are going up, and Firm B is trying to decide whether to pass on to customers a cost increase of 10 per cupto $0.45 per cup.

What will be their new gross margin if they dont pass on the cost increase and demand remains unchanged? $

What will be their new gross margin if they raise their price from $4.00 to $4.10 and demand decreases by 2%. $

Taking into consideration only these financial results, what should they do? (select option)Raise the price because the new margin exceeds the margin before the cost increaseRaise the price because demand increasesRaise the price because the revenues with the price increase exceed the costsRaise the price because the loss in volume due to the price increase still generates a higher gross margin than with the lower marginKeep the price the same so that revenues dont decreaseKeep the price the same because the gross margin increases

If they wanted to increase the price but try to maintain the same number of cups sold, what might they consider doing (Ctrl- or Cmd-click to select more than one)? Purchase a higher capacity espresso makerIncrease advertising on the radioOffer coupons through social mediaImprove customer service and lower wait timesMake additional cups of coffeeStay open an hour later