Answer:
the firm should advertise complementary goods together; Gummies and Raskels.
Explanation:
First the question is to determine based on cross - price elasticity which goods are better to advertise together
Complementary Goods
This represents goods where the cross elasticity of demand is negative. The meaning the increase in demand of goods A is as a result of the decrease in the price of goods B.
Substitute Goods
This represents goods where the cross elasticity of demand is positive. This means that the decrease in the demand for product A is linked to the decrease in the price of product B
Cross Elasticity of Gummies and Raskels
= percentage change in quantity demanded of Raskels/ % change in the price of gummies
= 4%/-5% (since it is a decrease)
= -0.8
<u>Gummies and Raskels are complementary goods as they show negative cross elasticity. </u>
Cross Elasticity of Gummies and Kipples
= percentage change in quantity demanded of Raskels/ % change in the price of gummies
= -6 %/-5% (both are decreases)
<u>Gummies and Kipples are substitute goods. </u>
Therefore, the firm should advertise complementary goods together; Gummies and Raskels.