Maximizing profit question
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Imagine that we are selling bottles of CocaCola in a vending machine. Currently, we charge $1.50 per bottle and have found through trial-and-error that if we raise the price by 1%, the quantity purchased will change by approximately -2% (...in other words, ?=2). If it will cost us approximately $0.75/bottle to supply more Coke to our customers, what should we do if our goal is to maximize profit?
Choose one answer.
a. Raise our price. Even though that means we will sell less soda, we'll get more per bottle, so our profits will rise.
b. Raise our price. We'll sell more soda and generate more profit.
c. Lower our price. Even though that means we will sell less soda, we'll get more per bottle, so our profits will rise.
d. Lower our price. We'll sell more soda and generate more profit.
e. Do nothing.
f. More information is needed to answer this question.
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Solution Summary
This solution explains what Coke should do if the goal is to maximize profit. The correct answer and explanation are provided.
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In this case, our increase in price was 1% and our change in demand was 2%. We didn't match an increase ...
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