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.
The argument above assumes that:
Fewer cups will be sold at the higher price, to the point that it will be less profitable.
The argument above assumes that increasing the price of a cup of lemonade will result in fewer sales and therefore lower profits for Johann's lemonade stand. To determine whether this assumption is valid, we need to consider the concept of price elasticity of demand.
Price elasticity of demand measures how responsive the quantity demanded of a product is to changes in its price. If the demand for lemonade is relatively elastic, a significant increase in price could indeed result in a substantial decrease in the number of cups sold, leading to lower profits. On the other hand, if the demand is relatively inelastic, the increase in price may not have a significant impact on the quantity demanded.
To evaluate the validity of the assumption made in the argument, Johann could conduct a simple experiment. He could gradually increase the price of his lemonade and track the changes in demand. If he notices a significant decrease in sales at the new, higher price, it would support the argument's assumption. However, if the decrease in demand is minimal or non-existent, the assumption would be considered invalid.
In general, it is important for business owners like Johann to consider various factors before making pricing decisions, such as understanding their target market, analyzing customer preferences, and conducting market research. These steps can help them make informed decisions and optimize their profits.