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You are the manager of a firm that receives revenues of $175,000 per year from product X and $50,000 per year from product Y . Both products have similar production costs. The own price elasticity of demand for product X is -1.5, and the cross-price elasticity of demand between product Y and X is 1.6. The end of the quarter is approaching and your boss is feeling pressured to increase the firm’s revenues. To that end, he suggests a 2 percent price increase to product X, since that is the most successful product in the firm.

a. Are products X and Y substitutes? Complements?

b. Do you think your boss’ suggestion will have the desired effect?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91706235

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