Question

Pepsi One is a close substitute for Diet Coke. When Pepsi introduced Pepsi One, the price elasticity of demand for Diet Coke ______ and Coke's ability to raise revenues through price increases _______.a. increased; was reducedb. increased; increasedc. decreased; was reducedd. had no effect; was reduced

Answer 1

Answer:

The answer is A.

Explanation:

An introduction of a substitute good or service will increase price elasticity of demand of its substitute meaning the competition is stiffer.

So Diet coke cannot increase its revenue by an increase in price because if this happens, consumers will shift to Pepsi one due to a lower price. This is the law of demand(the higher the price the lower the quantity demanded)