Question: Consider the following demand curve for Starbucks coffee.
|
Cups of Coffee
|
|
Price
|
|
10
|
|
0
|
|
9
|
|
1
|
|
8
|
|
2
|
|
7
|
|
3
|
|
6
|
|
4
|
|
5
|
|
5
|
|
4
|
|
6
|
|
3
|
|
7
|
|
2
|
|
8
|
|
1
|
|
9
|
(a) Suppose the current price is $8 per cup. Using elasticity of demand, explain why Starbucks should not increase the price in order to increase total revenue.
(b) Suppose the current price is $2 per cup. Using elasticity of demand, explain why Starbucks should not lower the price in order to increase total revenue.