Question

You work for a marketing firm that has just landed a contract with Run-of-the-Mills to help them promote three of their products: splishy splashies, flopsicles, and cannies. All of these products have been on the market for some time, but, to entice better sales, Run-of-the-Mills wants to try a new advertisement that will market two of the products that consumers will likely consume together. As a former economics student, you know that complements are typically consumed together while substitutes can take the place of other goods. Run-of-the-Mills provides your marketing firm with the following data: When the price of splishy splashies decreases by 1%, the quantity of flopsicles sold decreases by 18% and the quantity of cannies sold increases by 3%. Your job is to use the cross-price elasticity between splishy splashies and the other goods to determine which goods your marketing firm should advertise together.

Answer 1

Answer:

-18 splishy to flopsicle

3 splishy to cannies

It should do marketing for splishy and cannies.

Explanation:

↓P_splishy        1%

↓Q_flopsicles  18%

↑Q_cannies      3%

$\frac{change \: quanty}{change \: price} = cross-price elasticity$

-0.18/0.01 = -18 splishy to flopsicle

In this case a decrease in the price is respond by less quantity for the secodn product.

This means there is competition between products, when splishy decrease price, people decide to purcahse it instead if floopsicled.

0.03/0.01 = 3

The decrease in the price generate more quantity from cannied.

This represent a complementary relationship, because the price decrease, consumers purchase cannies with the diference or use part of the saving to purchase cannies.