1. A coffee retailer (PlanetBuck’s) has the following daily demand equation.
Q = 10,000 – 900(P) + 600(Pc) + 0.4(A)
Where P is the price of PlanetBuck’s coffee, Pc is the price of Starbuck’s coffee, and A is PlanetBuck’s advertising expense. Currently PlanetBuck’s and Starbuck’s Coffee are priced at $2.00 per cup, and PlanetBuck’s spends $10,000 for advertising.
1. What is PlanetBuck’s current daily sales? (Show your work)
2. What happens to PlanetBuck’s sales if price increases to $3.00 (all else equal)? (Show your work)
3. If PlanetBuck’s price remains $2.00 but Starbucks price is now $1.00, how will this impact PlanetBuck’s daily sales? (Show your work)
4. Show PlanetBuck’s continue to spend $10,000 on advertising? (Show your work)
