Question

Starbuck's specialty coffees or teas and a breakfast sandwich per household week and indicate which unit sales and price point maximizes total revenue and contrast that with the different unit sales and price point that maximizes operating profit:

Units sold	Uniform price	Total Revenue	Marginal Revenue	Variable Cost	IncrementalOperatingProfit
0	20	0	-	-	0
1	17	17	17	2	15
2	15	30	?	2	?
3	12.50	?	?	2	?
4	11	?	?	3	?
5	10	50	?	4	?
6	9	?	4	5	?
7	8	?	?	6	-4

Answer 1

Units sold	Uniform price	Total revenue	Marginal revenue	Variable cost	Marginal cost	Incremental operating profit
0	20	0	-	-	-	0
1	17	17	17	2	2	15
2	15	30	13	2	0	11
3	12.50	37.5	7.5	2	0	5.5
4	11	44	6.5	3	1	3.5
5	10	50	6	4	1	2
6	9	54	4	5	1	-1
7	8	56	2	6	1	-4

Formulas used -

Total Revenue= No. of units sold * Per unit price

Marginal revenue= Total Revenue at a unit - Total revenue at the immediately preceeding no. of units= TR_n-TR_n-1

Marginal Cost= Variable cost at a unit - Variable cost at the immediately preceeding no. of units= VC_n-VC_n-1

Incremental Operating profit =Marginal Revenue- Variable cost

Here, in this case Total revenue is maximised when it sells 7 units at the rate 8 per unit, but incremental profit is highest when 1 unit is sold at the rate 17/unit.