Homework (Ch 05)
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Attempts
Do No Harm/1
8. 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 pops,
raskels, 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 pops increases by 10%, the quantity of raskels sold
decreases by 26% and the quantity of mookies sold increases by 14%. Your job is to use the cross-price elasticity between penguin pops and the
other goods to determine which goods your marketing firm should advertise together.
Complete the first column of the following table by computing the cross-price elasticity between penguin pops and raskels, and then between penguin
pops and mookies. In the second column, determine if penguin pops are a complement to or a substitute for each of the goods listed. Finally,
complete the final column by indicating which good you should recommend marketing with penguin pops.
Relative to Penguin Pops
Cross-Price Elasticity of Demand Complement or Substitute Recommend Marketing with Penguin Pops
Raskels
Mookies
