Question

According to the In the News, IN THE NEWS Starbucks Ups the Price of Iced Drinks Starbucks raised the price of iced coffee, frappuccinos, and other cold drinks by 10-30 cents, effective November 10. This is the second price hike this year, the company having raised the price of hot drinks by similar amounts last July. The average price of a venti mocha Frappuccino is now $4.95, up from $4.65 at most locations. While many customers took to Twitter to express their anger at another price hike, analysts see little risk for Starbucks, which maintains strong pricing power. Source: Media reports, November 12-20, 2016. Instructions: Round your responses to two decimal places. a. By what percent did Starbucks increase the price of a venti frappuccino? percent b. If the price elasticity for frappuccinos is 0.3, by how much would unit sales drop? percent c. After the price increase, total revenue would increase

Answer 1

The average price of a Vesti huocha Frappuccino is now $ 4.95 oy at most locations! from $465 _a) The percent by which Starbucks inenased the prie of a verti Frappuccino y 4.95 - $4.65 $ 4651 00 - 6.45% B) The price elasticity for frappuccinos b 0.3. According force elasticity formula elasticity =% change in quantity en % change in frie or, elasticity x % change in frie = % change in sales or 0.3 x 6.45 =% change in sales or e% change in sales ! 20% wwwer : 4 prie elasticity for trappuccinos b 0.3, sales would drop by 27. e) After the price increase, total revenue would increase, because sales drop proportionately less than the % Increase in frie. Scanned with Cape Scene