Answered: Vijay Dairy is selling flavoured milk…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter3: Demand Analysis

Section: Chapter Questions

Problem 7E: In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price...

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Q.7. Vijay Dairy is selling flavoured milk and buttermilk in packets of 150 ml. The dairy sells 2000 packets of flavoured milk and 1000 packets of buttermilk every day. The former is priced at Rs.6 and the latter at Rs.4. A market survey estimates the cross-price elasticity (both ways) to be +1.8 and the own price elasticity of flavoured milk to be -1.3. The dairy is contemplating a 10 % reduction in the price of flavoured milk. Should it go ahead with the price reduction?

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