7. Substitutes, complements, or unrelated? You work for a marketing firm that ha

Question

7. Substitutes, complements, or unrelated?

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: penguin patties, flopsicles, and mookies. 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 penguin patties decreases by 5%, the quantity of flopsicles sold increases by 4% and the quantity of mookies sold decreases by 5%. Your job is to use the cross-price elasticity between penguin patties and the other goods to determine which goods your marketing firm should advertise together.

please find:

Flopsicles-

1. Cross-Price Elasticity of Demand

2. Complement or Substitute?

3. Recommend Marketing with Penguin Patties? yes or no?

mookies-

1. Cross-Price Elasticity of Demand

2. Complement or Substitute?

3. Recommend Marketing with Penguin Patties? yes or no?

Explanation / Answer

Answer:

Flopsicles-

Formula of cross-price elasticity of demand = % change in quantity of flopsicles/ % change in price of penguin patties

Cross – price elasticity of demand = 4 / 5

                           =   0.8

The cross – price elasticity of demand is 0.8

Flopsicles is the complementary good for penguin patties because with the decrease in price of penguin patties the quantity demanded of Flopsicles has increased.

3. Recommend Marketing with Penguin Patties?

yes, I will recommend marketing of Flopsicles with penguin patties it will increase the market power of penguin patties.

mookies-

= 5 / 5

= 1

The cross- price elasticity of demand is 1.

2. Complement or Substitute:

Mookies is substitute good for penguin patties because with the decrease in price of penguin patties the quantity of mookies sold has decreased.

3. Recommend Marketing with Penguin Patties? yes or no?

No, I will not recommend marketing of Mookies with penguin patties as it can adversely affect marketing of penguin patties.

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.