A firm produces two goods, x and y, such as Apple producing high-end and lower-end Apple watches or a restaurant producing beer and pizza. We recall the formula: AR= = [(1 + Eq. p. )* R¸ + Eq, p. *R, ]*%AP, P P O *. Regarding this formula, a) The cross-price elasticity, when negative, helps ameliorate the revenue consequences of an increase in the Price of x as consumers shift to purchases of y. b) The revenue consequences of a decrease in the Price of x are heightened when the two goods are complements. c) The cross-price elasticity, when positive, helps ameliorate the revenue consequences of an increase in the Price of x. d) Both b) and c) above. e) None of the above.
A firm produces two goods, x and y, such as Apple producing high-end and lower-end Apple watches or a restaurant producing beer and pizza. We recall the formula: AR= = [(1 + Eq. p. )* R¸ + Eq, p. *R, ]*%AP, P P O *. Regarding this formula, a) The cross-price elasticity, when negative, helps ameliorate the revenue consequences of an increase in the Price of x as consumers shift to purchases of y. b) The revenue consequences of a decrease in the Price of x are heightened when the two goods are complements. c) The cross-price elasticity, when positive, helps ameliorate the revenue consequences of an increase in the Price of x. d) Both b) and c) above. e) None of the above.
Chapter5: Elasticity Of Demand And Supply
Section: Chapter Questions
Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...
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