Profit Maximization Analysis of a Vietnamese Coffee Shop
Added on 2022-04-22
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Assignment 2 - Profit Maximization Analysis
Introduction
My coffee shop’s main product is traditional Vietnamese coffee, located in central Hanoi.
Our shop targets on adults to middle-aged customers. The price for a cup of coffee at my shop is
30,000 VND. Below is the profit maximization analysis for my coffee shop.
Figure 1: Coffee quantity demanded axes
Introduction
My coffee shop’s main product is traditional Vietnamese coffee, located in central Hanoi.
Our shop targets on adults to middle-aged customers. The price for a cup of coffee at my shop is
30,000 VND. Below is the profit maximization analysis for my coffee shop.
Figure 1: Coffee quantity demanded axes
As an economic measure of a variable's responsiveness, elasticity is commonly used to describe
the change in a variable's demand as a function of changes to other variables, such as price
(Hayes A, 2021). The demand curve, on the other hand, is a graphical measure of the
relationship between the cost of a product or service and the quantity demanded over a given
time period. (Kenton W, 2021). According to the survey, a quantity of demand and price table is
made
Price ( VND ) Quantity
20,000 VND (P0) 7 (Q0)
30,000 VND (P1) 6 (Q1)
40,000 VND (P2) 5 (Q2)
50,000 VND (P3) 2 (Q3)
εP 1 = % ∆ Q
% ∆ P = ∆ Qd
∆ Pd * P 0+ P 1
Q0+ Q1 = 6−7
30000−20000 * 20000+30000
7 +6 = -0,38 = |0,38|
εP2 = % ∆ Q
% ∆ P = ∆ Qd
∆ Pd * P 1+ P 2
Q1+Q 2 = 5−6
40000−30000 * 30000+40000
5+6 = -0,63 = |0,63|
εP3 = % ∆ Q
% ∆ P = ∆ Qd
∆ Pd * P 2+ P 3
Q2+Q 3 = 2−5
50000−40000 * 40000+50000
2+5 = -3,85 = |3,85|
As can be seen, all of the elasticity quotients are negative which demonstrates that it follows the
Law of Demand. The demand elasticity of a good or service is calculated by subtracting the
percentage change in the quantity demanded from the percentage change in the price.. When the
demand elasticity quotient is larger than or equal to one, it is assumed that the demand is
elasticity. (Hall M, 2022). Based on the above calculation, the demand curve for a coffee goes
inelastic from 20,000 to 40,000 VND (Elasticity quotient<1). By contrast, when the coffee
price rises from 40,000 to 50,000 VND, the demand becomes elastic (Elasticity quotient >1).
According to with elasticity quotient, for every one percent increase in the price of a cup of
coffee, the quantity demanded decreases by one percent.
the change in a variable's demand as a function of changes to other variables, such as price
(Hayes A, 2021). The demand curve, on the other hand, is a graphical measure of the
relationship between the cost of a product or service and the quantity demanded over a given
time period. (Kenton W, 2021). According to the survey, a quantity of demand and price table is
made
Price ( VND ) Quantity
20,000 VND (P0) 7 (Q0)
30,000 VND (P1) 6 (Q1)
40,000 VND (P2) 5 (Q2)
50,000 VND (P3) 2 (Q3)
εP 1 = % ∆ Q
% ∆ P = ∆ Qd
∆ Pd * P 0+ P 1
Q0+ Q1 = 6−7
30000−20000 * 20000+30000
7 +6 = -0,38 = |0,38|
εP2 = % ∆ Q
% ∆ P = ∆ Qd
∆ Pd * P 1+ P 2
Q1+Q 2 = 5−6
40000−30000 * 30000+40000
5+6 = -0,63 = |0,63|
εP3 = % ∆ Q
% ∆ P = ∆ Qd
∆ Pd * P 2+ P 3
Q2+Q 3 = 2−5
50000−40000 * 40000+50000
2+5 = -3,85 = |3,85|
As can be seen, all of the elasticity quotients are negative which demonstrates that it follows the
Law of Demand. The demand elasticity of a good or service is calculated by subtracting the
percentage change in the quantity demanded from the percentage change in the price.. When the
demand elasticity quotient is larger than or equal to one, it is assumed that the demand is
elasticity. (Hall M, 2022). Based on the above calculation, the demand curve for a coffee goes
inelastic from 20,000 to 40,000 VND (Elasticity quotient<1). By contrast, when the coffee
price rises from 40,000 to 50,000 VND, the demand becomes elastic (Elasticity quotient >1).
According to with elasticity quotient, for every one percent increase in the price of a cup of
coffee, the quantity demanded decreases by one percent.
Figure 2: Coffee prices on an online platform (ShopeeFood, 2022)
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