Kosty Koffie is a coffee shop in Berkeley, California. The coffee market in Berkeley has two very different types of customers. There are many wealthy working professionals an a large number of considerably less wealthy college students. The demand functions for coffee from these two groups are, respectively:
and
where
and
The cost of selling
The profit-maximizing quantity of coffee drinks Kosty Koffie will sell to professionals is and the quantity it will sell to students is The price charged by Kosty Koffie for a coffee to a professional will be
Final Answer: The profit-maximizing quantity of coffee drinks Kosty Koffie will sell to professionals is
Step 1 :Given the demand functions for coffee from professionals and students as
Step 2 :Solving the demand functions for the price,
Step 3 :The cost of selling
Step 4 :To find the profit-maximizing quantity of coffee drinks Kosty Koffie will sell to professionals, we need to set up the profit function for professionals and then find the quantity that maximizes this function.
Step 5 :The profit function is given by the difference between total revenue and total cost. Total revenue is the price per coffee drink times the quantity of coffee drinks sold, and total cost is given by the cost function.
Step 6 :We can substitute the inverse demand function for the price in the total revenue to express it as a function of quantity. Then we can take the derivative of the profit function with respect to quantity and set it equal to zero to find the quantity that maximizes profit.
Step 7 :Setting up the profit function for professionals:
Step 8 :Taking the derivative of the profit function with respect to quantity:
Step 9 :Setting the derivative equal to zero and solving for
Step 10 :Final Answer: The profit-maximizing quantity of coffee drinks Kosty Koffie will sell to professionals is