ompany X and company Z are planning to merge their business into one and are seeking regulatory approval. What is the most likel
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Answer:
a. 21 percent
b. -20 percent
c. -8 percent
d. -8 percent
Explanation:
Own price elasticity = -3
Income elasticity = -2
Advertising elasticity= 4
Cross price elasticity = -2
Formula for elasticity is given by,
a. When price of good X decreases by 7 percent.
Thus, as price decreases by 7% quantity rises by 21%.
b. The price of good Y increases by 10 percent.
Thus, as price of good Y increases by 10 percent, demand for good X falls by 20 percent.
c. Advertising decreases by 2 percent.
Thus, a 2 percent decline in advertising will lead to a 8 percent fall in quantity of good X.
d. Income increases by 4 percent.
Thus, when income increases by 4 percent, quantity decreases by 8 percent.