Looking to increase the profits of his lemonade stand, Johann doubled the price of a cup of lemonade from 25 cents to 50 cents. This clearly shows Johann’s lack of business sense, for now he’ll almost certainly sell fewer cups at the new price and therefore make less money than before.
What is your question?
Question are:
-Johann is looking to double the profits of his lemonade stand
-the price increase will likely put Johann out of business
-profits from the price increase will not offset the money lost when fewer cups are sold
-even if Johann sells more cups at the new price than he did at the old price, he’ll still lose money on the lemonade stand
To analyze the impact of doubling the price of a cup of lemonade on Johann's profits, we can break it down step by step:
1. Initial Situation:
- Price before: 25 cents
- Price after: 50 cents
2. Quantity of Cups Sold:
- To understand the impact on profits, it's important to consider the quantity of cups Johann sells at each price.
3. Demand Elasticity:
- If the demand for lemonade is relatively elastic, customers may be sensitive to price changes, and Johann may sell fewer cups at the higher price.
- If the demand is inelastic, customers may still purchase lemonade at the higher price, resulting in fewer cups sold but potentially higher profits due to increased revenue per cup.
4. Calculating Profits:
- To determine Johann's profits, we need to consider the revenue and costs associated with each situation.
a. Scenario 1: 25 cents per cup
- Let's assume Johann sells X cups at 25 cents each.
- Revenue at 25 cents = X cups * $0.25 = $0.25X
b. Scenario 2: 50 cents per cup
- Let's assume Johann sells Y cups at 50 cents each (which is expected to be lower than X).
- Revenue at 50 cents = Y cups * $0.50 = $0.50Y
5. Comparative Analysis:
- To determine which scenario is more profitable, we need to compare the revenues and assess if the increase in price compensates for the decrease in cups sold.
a. Revenue Comparison:
- If $0.50Y < $0.25X, the increased price does not offset the decrease in cups sold, resulting in lower revenue.
b. Profit Analysis:
- To calculate profits, we need to consider the costs associated with running the lemonade stand.
- If the cost per cup is less than the difference between $0.25X and $0.50Y, then the profit may still increase despite selling fewer cups.
6. Conclusion:
- Given the step-by-step analysis, including revenue, cost, and demand elasticity, it is possible that Johann may not make more money by doubling the price of a cup of lemonade.
- However, this conclusion may vary depending on specific factors such as costs, customer behavior, and competition.
To determine whether Johann's decision to double the price of a cup of lemonade is a lack of business sense or not, we need to calculate the potential impact on his profits.
To start, we'll look at the original pricing:
- Original price per cup of lemonade: 25 cents
- Let's assume Johann sold X cups of lemonade at this price.
Now, let's analyze the new pricing:
- New price per cup of lemonade: 50 cents
- Since the new price is double the original price, we can reasonably expect that Johann might sell fewer cups of lemonade.
- Let's assume Johann sells Y cups of lemonade at the new price.
To compare the profit before and after the price change, we need to calculate the total revenue in each scenario:
Original Pricing:
Total revenue before the price change = X (cups sold) * 25 cents (original price)
New Pricing:
Total revenue after the price change = Y (cups sold) * 50 cents (new price)
Now, consider the potential impact on profit:
Profit before price change = Total revenue before - Cost of producing the lemonade
Profit after price change = Total revenue after - Cost of producing the lemonade
To determine if Johann's decision was wise or not, we need to compare the profits in both scenarios. If Johann's profit after the price change is higher, then it would indicate a good business decision. However, if the profit after the price change is lower, then Johann might have made a less favorable decision.
Keep in mind that this analysis assumes all other factors remain constant, such as the cost of producing the lemonade and the demand for the product. In reality, there may be additional factors to consider that can influence the outcome.
By following this approach and plugging in the appropriate numbers, you can determine whether Johann's decision to double the price of a cup of lemonade is a sound business move or not.