Over the past 6 months Heads-Up Hair Care, Inc., has normally had sales of 500 b
ID: 1252487 • Letter: O
Question
Over the past 6 months Heads-Up Hair Care, Inc., has normally had sales of 500 bottles of A-6 Hair Conditioner per week. On the weeks when Heads-Up ran sales on its B-8 Hair Conditioner, cutting the price of B-8 from $10 to $8, sales of A-6 declined to 300 bottles.Question: If the price of B-8 were increased to $12, what effect would you expect this to have on the quantity demanded of A-6?
Answer:
If the cross elasticity remains constant at 2.25 when the price of B-8 is increased, sales of A-6 should increase as follows:
2.25 = [(QA2 - 500)/(QA2+500)]/[(12 -10)/(12+10)]
QA2 = 757
How did they get to 757 for QA2?
Explanation / Answer
Sorry, that was just a typo. Should be 9/4 which is 2.25 given. When you multiply 9/4 by 2/11, you should get 9/22.
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