Question

Use the double marginalization problem and solution guides to structure two alternatives: one in which prices to consumers are maintained and profits are split 3:1 in favor of Starbucks, and one in which prices are raised 25% and profits are split 2:1 in favor of Starbucks. Assume the following: current price is $8.00 for a bag of this coffee, manufacturer costs have been $2.00, their mark-up has been $2.00 (and they're seeking more), retailing costs have been $1.00 and mark-up has been $3.00. What are the resulting mark-ups for the manufacturer and retailer (Starbucks) under each scenario? How will suppliers and consumers respond to either scenario

Answer 1

Answer:

Given

two alternatives are:

prices to consumers are maintained and profits are split 3:1 in favor of Starbucks

prices are raised 25%  profits are split 2:1 in favor of Starbucks

current price is $8.00 for a bag of this coffee,

manufacturer costs have been $2.00,

their mark-up has been $2.00

retailing costs have been $1.00

and mark-up has been $3.00

The resulting mark-ups for the manufacturer and retailer (Starbucks) under each scenario

and

How will suppliers and consumers respond to either scenario is explained as below:

• The power that the star bucks hold over their suppliers is ,Star buck's always worked with fair trade supplier's that too only the one who can provide high quality bean's.They have worked with anti competitive practice policies with suppliers.
• The resulting mark up for the manufacturer and retailer under each scenario is that mark up in second case will be profitable for star bucks.
• suppliers and customers respond to either scenario is that , they respond in different ways ie suppliers may initially not tend to receive low prices while customers may slowly be loyal soon.