Fidelity Investments Interview Question: You sell 200 cups of coffee p... | Glassdoor.co.in

Interview Question

Analyst Interview Boston, MA (US)

You sell 200 cups of coffee per year at $10 for a cup. It

  costs you eight dollars to produce a cup of coffee. Would you rather double your price but loose half of the amount you sell or keep the price the same and double the amount that you sell? Which is more realistically feasible?
Tags:
math
Answer

Interview Answer

5 Answers

5

If you double your volume, while keeping the price constant, you make $800 (($10-$8)($400)) and if you double your price but loose half of your volume you make $1,200 (($20-$8)(100)). The catch is, however, that it is much easier to do the former because no one would realistically buy your good if you double the price.

Interview Candidate on 14-Aug-2011
0

I don't agree with the part that practically it is easier to double the quantity while keeping the price same.

Neither do I agree with the other side. I'd ask for more data, ask more questions before I answer that viz. if we know consumer's willingness to pay, price of substitutes available, what would it take to double the quantity sold at the same price, demand curve etc.

Jatin Rai on 20-Aug-2011
3

either way, it's "Lose" not "loose" so if it was a written test, don't write "Loose"

scott on 24-May-2012
5

It is definitely easier to sell half as much volume. Your sales volume remains the same, while your costs are lower AND - It is less work. To double the volume requires more work.

David on 25-Aug-2012
1

Since they tell you what happens to price and volume you don't have to guess at elasticity or substitutes. But its not as easy as just adjusting revenue and volume because you have a utliziation component. Selling coffee has a high fixed cost, ie rent and labor. Whether you sell 1 cup or 1000 cups, you still need the store and an employee and so your profit will vary widely. So my first question would be to ask if the cost stays the same. If yes, then just do math above but then this wouldn't be a challenging question. As for which is feasible, since elasticity is 1 in both cases, they are both feasible. However, since these are not likely real world outcomes, I would ask more questions which I'm guessing is exactly what this question is designed to do.

Tony on 14-Sep-2012

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