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: splishy splashies, flopsicles, and kipples. 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 splishy splashies decreases by 4%, the quantity of flopsicles sold increases by 5% and the quantity of kipples sold decreases by 5%. Your job is to use the cross-price elasticity between splishy splashies 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 splishy splashies and flopsicles, and then between splishy splashies and kipples. In the second column, determine if splishy splashies 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 splishy splashies.Relative to Splishy Splashies Cross-Price Elasticity of Demand Complement or Substitute Flopsicles Kipples

Question

01-10-2019
Business

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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: splishy splashies, flopsicles, and kipples. 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 splishy splashies decreases by 4%, the quantity of flopsicles sold increases by 5% and the quantity of kipples sold decreases by 5%. Your job is to use the cross-price elasticity between splishy splashies 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 splishy splashies and flopsicles, and then between splishy splashies and kipples. In the second column, determine if splishy splashies 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 splishy splashies.Relative to Splishy Splashies Cross-Price Elasticity of Demand Complement or Substitute Flopsicles Kipples

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DelcieRiveria DelcieRiveria · Answer 1 · 2019-10-04T13:37:32+02:00

Explanation:

When the price of splishy splashies decreases by 4%, the quantity of flopsicles sold increases by 5% and the quantity of kipples sold decreases by 5%. This indicates that splishy splashies and flopsicles are complements and kipples is their substitute.

Cross price elasticity of flopsicles

= [tex]\frac{change\ in\ quantity\ demanded}{change\ in\ price}[/tex]

= [tex]\frac{-4}{5}[/tex]

= -0.8

Cross price elasticity of kipples

= [tex]\frac{change\ in\ quantity\ demanded}{change\ in\ price}[/tex]

= [tex]\frac{-4}{-5}[/tex]

= 0.8

Substitute goods show a positive price elasticity while complements have a negative price elasticity. So we can say that splishy splashies are a substitute for kipples and complements for flopsicles.

Complements should be marketed together so I recommend marketing flopsicles with splishy splashies.

martin58853 martin58853 · Answer 2 · 2020-03-05T04:43:30+01:00

Answer:It is recommended: marketing flopsicles.

Explanation:

When the price of splishy splashies decreases by 4%, then quantity of flopsicles sold increases by 5% and the quantity of kipples sold decreases by 5% ie negative. This indicates that splishy splashies and flopsicles are complements and kipples is their substitute.

Cross price elasticity of flopsicles

=

= -0.8

Cross price elasticity of kipples

= 0.8

Substitute goods show a positive price elasticity while complements have a negative price elasticity. So we can say that splishy splashies are a substitute for kipples and complements for flopsicles.

I recommend marketing flopsicles.