// LabInfoTypesConSurSpecs.txt. 8/11/2021. import Foundation class LabInformationTypesSpecs { let strInfoTypesConSurSpecs :String = """ `` Lab Specs // Sliders .05 .40 .05 .20 // 0: Low type - Demand curve price intercept .05 .40 .05 .20 // 1: High type - Demand curve price intercept -.025 -.005 .005 -.010 // 2: Low type - Demand curve slope -.025 -.005 .005 -.005 // 3: High type - Demand curve slope 0 45 2 15 // 4: Low type - Quantity offered 0 45 2 35 // 5: High type - Quantity offered .05 .2 .05 .1 // 6: Marginal cost 2.70 3.00 .01 3.00 // 7: Large size Price - Only relevant for asymmetric info // Graph specs 0 0 30 .20 // 8: Graph data range Cup_Size_(oz) $/Oz // 9: Graph axis names T // 10: T Draw consumer surplus values on graph // with asummetric information is selected //10 .19 23 .13 // 11: Coordinates of small and large cups 10 .19 30 .14 // 11: Coordinates of small and large cups `` Prob Specs ` Problem 0 Start Screen 1 - The Model // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N N // 1: Demand Curves - LowIntercept LowSlope HighIntercept HighSlope L // 2: Marginal and Average Total Cost N N N // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information F F // 4: Visibility F F // 5: Enable F // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility L // 8: Default - L:Low type H:High type // Graph Curves and Surplus Areas T T T // 9: LowDemandCurve HighDemandCurve MC F F F F // 10: Surplus areas - TR TC Prof ConSur XX // 11: Select no area // Initial cup sizes and Large cup price (only relevant for asymmetric info) 8 16 3.00 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `RED`BLDObjective:`BLD Explain the basics of the model in the context of a coffee house like Starbucks.`BLK Suppose that Starbucks is a monopoly, there are no other coffee houses in the vicinity. For purposes of exposition, we assume that Starbucks has only two customers: `0x2022 Coffee lover `0x2022 Coffee fanatic The coffee lover drinks coffee moderately and is represented by the red demand curve. The coffee fanatic craves coffee and is represented by the purple demand curve. The coffee fanatic's purple demand curve lies to the right of the coffee lover's red demand curve indicating that if coffee were sold by the ounce, the coffee fanatic would demand more coffee at a given cents per ounce price. Now, we come to the complication. Coffee is not sold by the ounce, instead Starbucks sells coffee by the cup. It can offer various cup sizes. Starbucks can offer two sizes, one tailored to the preferences of each consumer: `0x2022 Cup size for the coffee lover. `0x2022 Cup size for the coffee fanatic. `BLDNB: Throughout this lab, it is critical to remember that consumers can only purchase coffee by the cup, not by the ounce.`BLD The horizontal blue line represents marginal and average cost curve which equals $.10 per ounce. That is, costs are expressed in terms of dollars per ounce, not dollars per cup. We will consider two different information scenarios: `0x2022 Full information `0x2022 Asymmetric information `BLDFull Information:`BLD Starbucks knows the type of its consumers before the sale. Therefore it can sell one size exclusively to the coffee lover and the other size exclusively to the coffee fanatic. The firm chooses the cup size for the customer, the customer has no choice. `BLDAsymmetric Information:`BLD The Starbucks does not know the type of its customers. It offers both sizes to each customer and then the customer chooses which size to buy. We begin with the full information case. ` Prob End ` Problem 1 Start Screen 2 - Full Information and Coffee Lovers // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N N // 1: Demand Curves - LowIntercept LowSlope HighIntercept HighSlope L // 2: Marginal and Average Total Cost B N N // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information T F // 4: Visibility F F // 5: Enable F // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility L // 8: Default - L:Low type H:High type // Graph Curves and Surplus Areas T F T // 9: LowDemandCurve HighDemandCurve MC T T T T // 10: Surplus areas - TR TC Prof ConSur XX // 11: Select no area // Initial cup sizes and Large cup price (only relevant for asymmetric info) 8 14 3.00 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `RED`BLDObjective:`BLD Illustrate the full information solution for the coffee lover.`BLK For the moment ignore the coffee fanatic, only consider the coffee lover. `BLDQuestions:`BLD In general, what `0x2022 cup size will Starbucks offer the coffee lover? `0x2022 price will Starbucks charge for a cup? `BLDAnswers:`BLD The cup size and price that maximizes Starbucks' profit. In the full information case, Starbucks exploits it monopoly power by acting as a first degree price discriminator. Starbucks charges the coffee lover an amount equal to the entire area beneath the coffee lover's demand curve. Consequently, consumer surplus for the coffee lover is 0. (Remember Starbucks sells coffee by the cup not by the ounce.) Adjust the Cup Size scrollbar beneath the graph to find the cup size that maximizes the firm's profit from its sales to the coffee lover. Use the checkboxes above the graph to illustrate Starbucks' total revenue, total cost, and profit resulting from the sale of the cup to the coffee lover. `BLDQuestions:`BLD For the coffee lover, what `0x2022 cup size maximizes Starbucks' profit? `0x2022 price per cup maximizes Starbucks' profit? ` Prob End ` Problem 2 Start Screen 3 - Full Information and Coffee Fanatics // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N N // 1: Demand Curves - LowIntercept LowSlope HighIntercept HighSlope L // 2: Marginal and Average Total Cost N B N // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information T F // 4: Visibility F F // 5: Enable F // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Areas F T T // 9: LowDemandCurve HighDemandCurve MC T T T T // 10: Surplus areas - TR TC Prof ConSur XX // 11: Select no area // Initial cup sizes and Large cup price (only relevant for asymmetric info) 18 14 3.00 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `RED`BLDObjective:`BLD Illustrate the full information solution for the coffee fanatic.`BLK For now ignore the coffee lover, only consider the coffee fanatic. Adjust the Cup Size scrollbar beneath the graph find the cup size that maximizes the Starbucks' profit from its sale to the coffee fanatic. `BLDQuestions:`BLD For the coffee fanatic, what `0x2022 cup size maximizes Starbucks' profit? `0x2022 price per cup maximizes Starbucks' profit? ` Prob End ` Problem 3 Start Screen 4 - Full Information with Both Consumer Types // 0: Title // Slider Visibility - B:Both S:ScrollBarOnly L:LabelOnly N:Neither N N N N // 1: Demand Curves - LowIntercept LowSlope HighIntercept HighSlope L // 2: Marginal and Average Total Cost B B N // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information T F // 4: Visibility F F // 5: Enable F // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility L // 8: Default - L:Low type H:High type // Graph Curves and Surplus Areas T T T // 9: LowDemandCurve HighDemandCurve MC F F F F // 10: Surplus areas - TR TC Prof ConSur XX // 11: Select no area // Initial cup sizes and Large cup price (only relevant for asymmetric info) 8 14 3.00 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `RED`BLDObjective:`BLD Illustrate the full information solution when both types are present.`BLK We begin by summarizing the two previous screens. The profit maximizing cup sizes for the coffee lover and coffee fanatic when Starbucks can treat its two customers separately: `0x2022 Coffee lover: Sold small 10 oz cup for $1.50. `0x2022 Coffee fanatic: Sold large 20 oz cup for $3.00. The consumer surplus of each customer equals 0. When Starbucks has full information it can treat the two customers entirely separately. It can refuse to sell a large cup to the coffee lover and refuse to sell a small cup to the coffee fanatic. Consequently, Starbucks can maximize its total profit by producing 2 cup sizes: `0x2022 Small cup sold to the coffee lover only. `0x2022 Large cup sold to the coffee fanatic only. Adjust the cup scrollbars to the two scrollbars to confirm that Starbucks' total profit is maximized by following this strategy. We refer to this as the full information solution. `BLDSummary:`BLD With full information Starbucks' profit from the sale of the `0x2022 small cup to the coffee lover: $.50. `0x2022 large cup to the coffee fanatic: $1.00. Starbucks' total profit is $1.50. `BLDFull Information Solution`BLD `0x2022 Coffee lover can only buy the small cup: Price=$1.50 ConSur=$.00 `0x2022 Coffee fanatic can only buy the large cup: Price=$3.00 ConSur=$.00 `0x2022 Starbucks' profit from coffee sales: Lover=$.50 Fanatic=$1.00 Total=$1.50 ` Prob End ` Problem 4 Start Screen 5 - Asymmetric Information // 0: Title N N N N // 1: Demand Curves - LowIntercept LowSlope HighIntercept HighSlope L // 2: Marginal and Average Total Cost L L N // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information T T // 4: Visibility T T // 5: Enable F // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Areas T T T // 9: LowDemandCurve HighDemandCurve MC T T T T // 10: Surplus areas - TR TC Prof ConSur ConSur // 11: Select consumer surplus area // Initial cup sizes and Large cup price (only relevant for asymmetric info) 10 20 3.00 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `RED`BLDObjective:`BLD Introduce the asymmetric information case.`BLK We begin with the full information solution. The firm sells the small 10 ounce cup to the coffee lover and the large 20 ounce cup to the coffee fanatic: `0x2022 Coffee lover can only buy the small cup: Price=$1.50 ConSur=$.00 `0x2022 Coffee fanatic can only buy the large cup: Price=$3.00 ConSur=$.00 `0x2022 Starbucks' profit from coffee sales: Lover=$.50 Fanatic=$1.00 Total=$1.50 `BLDQuestion:`BLD If Starbucks no longer has full information, will the full information solution persist? That is, is the full information solution incentive compatible? First, note that in the full information case the coffee fanatic can only purchase the large cup; furthermore, the large cup provides the coffee fanatic with no consumer surplus. Then, select the ASym Info checkbox. Starbucks can no longer restrict the sale of the small cup to coffee lovers only. The coffee fanatic can now purchase either cup size. The simulation tells us that the fanatic will switch to the small cup. It's easy to understand why from the two new items appearing on the graph. The small cup provides the coffee fanatic with $.25 of consumer surplus while the large cup provides none: Small cup=$.25 Large cup=$.00 The consumer surplus provided to the coffee fanatic from the small cup is illustrated by the gray shaded region of the graph. `BLDSummary:`BLD When Starbucks no longer has full information: `0x2022 Coffee lover buys small cup: Price=$1.50 ConSur=$.00 `0x2022 `BLDCoffee fanatic's consumer surplus:`BLD Small cup=$.25 Large cup=$.00 `0x2022 `BLDCoffee fanatic switches, buys small cup`BLD: Price=$1.50 ConSur=$.25 `0x2022 Starbucks' profit from coffee sales Lover=$.50 Fanatic=$.50 Total=$1.00 The full information solution is not incentive compatible. The coffee fanatic switches from the large cup to the small cup. `BLDQuestion:`BLD How does Starbucks feel about this? `BLDAnswer:`BLD Not happy. `0x2022 Starbucks' profit with full information Lover=$.50 Fanatic=$1.00 Total=$1.50 `0x2022 Starbucks' profit with asymetric information Lover=$.50 Fanatic=$.50 Total=$1.00 Starbucks still earns .50 of profit from the coffee lover, but now it only earns $.50 from the coffee fanatic instead of the $1.00 it earned with full information. Hence, Starbucks' total profit falls by $.50 from $1.50 to $1.00. `BLDSummary:`BLD With asymmetric information, the fanatic will switch from the large cup to the small cup: `0x2022 Fanatic's consumer surplus rises by $.25: $.00 `0x2192 $.25 `0x21D2 $.25`0x2191. `0x2022 Starbucks' profit falls by $.50. $1.50 `0x2192 $1.00 `0x21D2 $.50`0x2193. ` Prob End ` Problem 5 Start Screen 6 - Asymmetric Information // 0: Title N N N N // 1: Demand Curves - LowIntercept LowSlope HighIntercept HighSlope L // 2: Marginal and Average Total Cost L L B // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information F T // 4: Visibility F F // 5: Enable A // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Areas T T T // 9: LowDemandCurve HighDemandCurve MC T T T T // 10: Surplus areas - TR TC Prof ConSur ConSur // 11: Select consumer surplus area // Initial cup sizes and Large cup price (only relevant for asymmetric info) 10 20 3.00 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `RED`BLDObjective:`BLD Illustrate how Starbucks can increase profit by restoring incentive compatibility.`BLK `BLDReview:`BLD When Starbucks no longer has full information, the full information solution is not incentive compatible. Instead of buying the large cup, the coffee fanatic switches to the small cup because the small cup provides $.25 of consumer surplus whereas the large cup provides none: `0x2022 Coffee lover buys small cup: Price=$1.50 ConSur=$.00 `0x2022 `BLDCoffee fanatic's consumer surplus:`BLD Small cup=$.25 Large cup=$.00 `0x2022 `BLDCoffee fanatic buys small cup`BLD: Price=$1.50 ConSur=$.25 `0x2022 Starbucks' profit from sale of coffee Lover=$.50 Fanatic=$.50 Total=$1.00 The coffee fanatic's switch from the large cup to the small cup affects both the coffee fanatic and Starbucks: `0x2022 Fanatic's consumer surplus rises by $.25: $.00 `0x2192 $.25 `0x21D2 $.25`0x2191. `0x2022 Starbucks' profit falls by $.50. $1.50 `0x2192 $1.00 `0x21D2 $.50`0x2193. Clearly, Starbucks is not pleased. `BLDQuestion:`BLD How might Starbucks prevent the coffee fanatic from switching to the small cup? `BLDStarbucks' Strategy:`BLD Induce the coffee fanatic to continue buying the large cup by reducing its price by $.25 from $3.00 to $2.75. By doing so, the fanatic would have no incentive to switch because the large cup would then provide the coffee fanatic with $.25 of consumer surplus, the same amount as the small cup provides. `BLDCritical Point:`BLD When the two cups provide the coffee fanatic with same amount of consumer surplus there is no reason for the coffee fanatic to switch. To analyze this strategy, a new scrollbar appears on the screen, the Large Cup Price scrollbar. Initially, the price of the large cup equals its full information solution price, $3.00. `0x2022 Coffee fanatic's consumer surplus: Small cup=$.25 Large cup=$.00 `0x2022 Coffee fanatic switches to buy small cup Slowly adjust the Large Cup Price scrollbar located immediately below the graph to reduce the large cup price. A second gray area now appears on the graph illustrating the consumer surplus the large cup provides to the coffee fanatic. At a price of $2.75: `0x2022 Coffee fanatic's consumer surplus: Small cup=$.25 Large cup=$.25 `0x2022 No reason for coffee fanatic to switch cups `0x2022 Coffee fanatic continues to buy large cup `BLDQuestion:`BLD Does Starbucks have an incentive to reduce the large cup price from $3.00 to $2.75? `BLDAnswer:`BLD Compare Starbucks' profit at the two prices: `0x2022 Profit for $3.00 large cup price: Lover=$.50 Fanatic=$.50 Total=$1.00 `0x2022 Profit for $2.75 large cup price: Lover=$.50 Fanatic=$.75 Total=$1.25 `BLDSummary:`BLD When Starbucks no longer has full information, it has an incentive to decrease the price of the large cup: `0x2022 Large cup price $3.00 `0x2192 $2.75 `0x21D2 $.25`0x2193 `0x2022 Coffee fanatic's consumer surplus at $2.75 price: Small cup=$.25 Large cup=$.00 `0x2192 $.25 `0x21D2 $.25`0x2191 `0x2022 No reason for coffee fanatic to switch cups `0x2022 Coffee fanatic continues to buy the large cup `0x2022 Starbucks' total profit: $1.00 `0x2192 $1.25 `0x21D2 $.25`0x2191 ` Prob End ` Problem 6 Start Screen 7 - Asymmetric Information // 0: Title N N N N // 1: Demand Curves - LowIntercept LowSlope HighIntercept HighSlope L // 2: Marginal and Average Total Cost B L B // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information F T // 4: Visibility F F // 5: Enable A // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info F F // 7: Visibility H // 8: Default - L:Low type H:High type // Graph Curves and Surplus Areas T T T // 9: LowDemandCurve HighDemandCurve MC T T T T // 10: Surplus areas - TR TC Prof ConSur ConSur // 11: Select consumer surplus area // Initial cup sizes and Large cup price (only relevant for asymmetric info) 10 20 2.75 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue `RED`BLDObjective:`BLD Illustrate how Starbucks can increase profit even more by reducing the size of the small cup.`BLK `BLDReview:`BLD When Starbucks no longer has full information, it has an incentive to decrease the price of the large cup: `0x2022 Large cup price $3.00 `0x2192 $2.75 `0x21D2 $.25`0x2193 `0x2022 Coffee fanatic's consumer surplus at $2.75 price: Small cup=$.25 Large cup=$.00 `0x2192 $.25 `0x21D2 $.25`0x2191 `0x2022 No reason for coffee fanatic to switch cups `0x2022 Coffee fanatic continues to buy the large cup `0x2022 Starbucks' total profit: $1.00 `0x2192 $1.25 `0x21D2 $.25`0x2191 By reducing the large cup price by $.25 from $3.00 to $2.75, Starbucks increases its total profit by $.25. `BLDClaim:`BLD Starbucks can now increase its profit even more by `0x2022 reducing the small cup size. `0x2022 increasing the large cup price. To justify this claim, first reduce the size of the small cup from 10 to 8 ounces by adjusting the Small Cup Size scrollbar that lies beneath the graph. `BLDQuestion:`BLD How does this affect Starbucks' profit? `BLDAnswer:`BLD The profit generated from the coffee lover and hence total profit falls from $.50 to $.48, a decrease of $.02: Lover=$.48 Fanatic=$.75 Total=$1.23 That is, when Starbucks reduces size of the small cup from 10 to 8 ounces: Starbucks' total profit: $1.25 `0x2192 $1.23 `0x21D2 $.02`0x2193 However, before dismissing this as a bad idea, consider the consumer surplus the small cup now provides the coffee fanatic. `BLDQuestion:`BLD How does the reduction in the small cup size from 10 ounces to 8 ounces affect the consumer surplus the small cup provides the coffee fanatic? `BLDAnswer:`BLD Fanatic's consumer surplus from small cup: `0x2022 Small 10 ounce cup: $.25 `0x2022 Small 8 ounce cup: $.16 `BLDCritical Point:`BLD When the two cups provide the coffee fanatic with same amount of consumer surplus there is no reason for the coffee fanatic to switch. `BLDQuestion:`BLD The 8 ounce small cup now provides the coffee fanatic with only $.16 of consumer surplus. How much consumer surplus must the large cup provide to prevent the coffee fanatic from switching from the large to the small cup? `BLDAnswer:`BLD Only $.16 of consumer surplus is required. This means that Starbucks can now charge more for the large cup without fearing that the coffee fanatic will switch cups. Select the Large Cup checkbox to illustrate the consumer surplus the fanatic receives from the large cup. Then, use the Large Cup Price slider to increase the price of the large cup. `BLDQuestion:`BLD What large cup price provides the coffee fanatic with $.16 of consumer surplus, the amount required to keep the coffee fanatic from switching. `BLDAnswer:`BLD $2.84. `BLDQuestion:`BLD How much profit does Starbucks now earn from the sale of the large cup to the coffee fanatic? `BLDAnswer:`BLD Large cup profit rises from $.75 to $.84, an increase of $.09. `BLDSummary:`BLD Starbucks can increase its profit by reducing the size of the small cup and increasing the price of the large cup: `0x2022 Small cup size: 10 oz `0x2192 8 oz `0x2022 Starbucks' total profit: $1.25 `0x2192 $1.23 `0x21D2 $.02`0x2193 `0x2022 Coffee fanatic's consumer surplus: Small cup=$.25 `0x2192 $.16 `0x21D2 $.09`0x2193 Large cup=$.25 But now, the large cup provides the coffee fanatic with more consumer surplus than is needed to keep the coffee fanatic from switching, $.09 more. Therefore, Starbucks can increase the price of the large cup by $.09: `0x2022 Large cup price $2.75 `0x2192 $2.84 `0x21D2 $.09`0x2191 `0x2022 Coffee fanatic's consumer surplus: Small cup=$.16 Large cup=$.25 `0x2192 $.16 `0x21D2 $.09`0x2193 `0x2022 No reason for coffee fanatic to switch cups. `0x2022 Coffee fanatic continues to buy large cup. `0x2022 Starbucks' total profit: $1.23 `0x2192 $1.32 `0x21D2 $.09`0x2191 Net result of the decrease in the small cup size and increase in the large cup price: `0x2022 Total profit: $1.25 `0x2192 $1.23 `0x2192 $1.32 `0x21D2 $.07`0x2191 The decrease in the small cup size and increase in the large cup price results in a $.07 increase in Starbucks' profit. ` Prob End """ } ` Problem X Start Screen 6 - All Sliders // 0: Title B B B B // 1: Demand Curves - LowIntercept LowSlope HighIntercept HighSlope B // 2: Marginal and Average Total Cost B B B // 3: Small Size, Large Size, and Large Size Price // CheckBoxes: Full and Asymmetric Information T T // 4: Visibility T T // 5: Enable F // 6: Default - F:Full information A:Asymmetic // Checkboxes: High and low types - Only relevant for asymmetric info T T // 7: Visibility L // 8: Default - L:Low type H:High type // Graph Curves and Surplus Areas T T T // 9: LowDemand HighDemand MC T T T T // 10: Surplus areas - TR TC Prof ConSur XX // 11: Select no area // Initial cup sizes and Large cup price (only relevant for asymmetric info) 10 20 3.00 // 12: SmallCupSize LargeCupSize LargeCupPrice ` Text Start // 13: Dialogue Walt: I included this to show you that you can change the demand and cost parameters. I've played around with the parameters to try to find better numbers without success. ` Prob End `0x2022 $3.00 large cup price: `0x25E6 Coffee fanatic's consumer surplus Small cup=$.25 Large cup=$.00 `0x25E6 Coffee fanatic switches to small cup `0x25E6 Starbucks' profit Lover=$.50 Fanatic=$.50 Total=$1.00 `0x2022 $2.75 large cup price: `0x25E6 Coffee fanatic's consumer surplus Small cup=$.25 Large cup=$.25 `0x25E6 Coffee fanatic continues to buy large cup `0x25E6 Starbucks' profit Lover=$.50 Fanatic=$.75 Total=$1.25 Focus on how Starbuck's profit is affect by the reduction in the small cup size and the increase in the large cup price: `0x2022 Profit from small cup: $.50 `0x2192 $.48 `0x21D2 $.02`0x2193 `0x25E6 Total profit: $1.25 `0x2192 $1.23 `0x21D2 $.02`0x2193 `0x2022 Profit from large cup: $.75 `0x2192 $.84 `0x21D2 $.09`0x2191 `0x25E6 Total profit: $1.23 `0x2192 $1.32 `0x21D2 $.09`0x2191 In net, when Starbucks reduces the small cup size and then increase the large cup price: `0x2022 Total profit: $1.25 `0x2192 $1.23 `0x2192 $1.32 `0x21D2 $.07`0x2191