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25 May, 02:21

Run-of-the-Mills provides your marketing firm with the following dа ta: When the price of guppy gummies decreases by 5%, the quantity of raskels sold increases by 4% and the quantity of kipples sold decreases by 6%. Your job is to use the cross-price elasticity between guppy gummies and the other goods to determine which goods your marketing firm should advertise together.

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Answers (2)
  1. 25 May, 04:21
    0
    Advertise guppy gums and raskels

    Explanation:

    Cross price elasticity is used the determine the relationship between two goods. Quantity of compliments increases together, while with subsititutes increase in one results in reduction of the other.

    Cross elasticity of guppy gums and raskels = - 5/4 = - 1.25

    Negative cross elasticity means the products are complimentary. When price of guppies goes up its demand will reduce, demand of raskels will also reduce

    Cross elasticity of guppy gums and kipples = - 5/-6 = 0.8333

    When cross elasticity is positive, the goods are substitutes. As price of guppies goes up its demand goes down, and demand for kipples goes up.

    So we will decide to market compliments together because increase in demand for one leads to increase in demand for the other.

    We will go with guppy gums and raskels
  2. 25 May, 04:27
    0
    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

    Gummies and Raskels are complementary goods as they show negative cross elasticity.

    Cross Elasticity of Gummies and Kipples

    = percentage change in quantity demanded of Raskels / % change in the price of gummies

    = - 6 %/-5% (both are decreases)

    Gummies and Kipples are substitute goods.

    Therefore, the firm should advertise complementary goods together; Gummies and Raskels.
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