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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

In 1947, the U.S. Department of Justice brought a suit against the DuPont Company (which, at the time, sold75 percent of all the cellophane in the United States) for monopolizing the production and sale of cellophane. In court, DuPont tried to show that cellophane was only one of several goods in the market in which it was sold. The company argued that its market was not the cellophane market but the flexible-packaging materials market, which included (besides cellophane) waxed paper, aluminum foil, and other such products. DuPont pointed out that it had only 20 percent of all sales in this more broadly defined market. Using this information, discuss how the concept of cross elasticity of demand would help establish whether DuPont should have been viewed as a firm in the cellophane market or as a firm in the flexible-packaging materials market.

To determine

The role of cross price elasticity to establish Company Du as a firm in the cell phone market.

Explanation

The cross elasticity of demand can prove that the case against Company Du is a reasonable one or not. If the value of cross elasticity is less than zero, then it indicates the negative relation between the quantity demanded of a cell phone and the price of other substitute goods. Hence, the goods are complements. There is no competition between them. Then, it will weaken the case against Firm Du...

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