ou 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 splashers, raskels, 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 splashers decreases by 8%, the quantity of raskels sold increases by 6% and the quantity of kipples sold decreases by 8%. Your job is to use the cross-price elasticity between splishy splashers 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 splashers and raskels, and then between splishy splashers and kipples. In the second column, determine if splishy splashers 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 splashers. Relative to Splishy Splashers Recommend Marketing with Splishy Splashers Cross-Price Elasticity of Demand Complement or Substitute Raskels Kipples

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter12: More Realistic And Complex Pricing

Section: Chapter Questions

Problem 9MC: After running a promotional campaign, the owners of a local hardware store decided to decrease the...

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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: splishy splashers, raskels, 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 splashers decreases by 8%, the quantity of raskels sold increases by 6% and the quantity of kipples sold decreases by 8%. Your job is to use the cross-price elasticity between splishy splashers 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 splashers and raskels, and then between splishy splashers and kipples. In the second column, determine if splishy splashers 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 splashers.

	Relative to Splishy Splashers	Recommend Marketing with Splishy Splashers
Cross-Price Elasticity of Demand	Complement or Substitute
Raskels
Kipples

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