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: guppy gumi flopsicles, 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 advertisement that will market two of the products that consumers will likely consume together. As a former economics student, you know th 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 guppy gummies decreases by 4%, the quantity of flo sold increases by 5% and the quantity of kipples sold decreases by 5%. Your job is to use the cross-price elasticity between guppy gummies 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 guppy gummies and flopsicles, and then betw guppy gummies and kipples. In the second column, determine if guppy gummies are a complement to or a substitute for each of the goods li Finally, complete the final column by indicating which good you should recommend marketing with guppy gummies. Relative to Guppy Gummies oss-Price Elasticity of mand Complement or Subst Recommend Marketing with Guppy Gummies Flopsicles Kipples
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: guppy gumi flopsicles, 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 advertisement that will market two of the products that consumers will likely consume together. As a former economics student, you know th 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 guppy gummies decreases by 4%, the quantity of flo sold increases by 5% and the quantity of kipples sold decreases by 5%. Your job is to use the cross-price elasticity between guppy gummies 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 guppy gummies and flopsicles, and then betw guppy gummies and kipples. In the second column, determine if guppy gummies are a complement to or a substitute for each of the goods li Finally, complete the final column by indicating which good you should recommend marketing with guppy gummies. Relative to Guppy Gummies oss-Price Elasticity of mand Complement or Subst Recommend Marketing with Guppy Gummies Flopsicles Kipples
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![### Understanding Cross-Price Elasticity in Marketing
#### Scenario
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: guppy gummies, flopsicles, 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 guppy gummies decreases by 4%, the quantity of flopsicles sold increases by 5% and the quantity of kipples sold decreases by 5%. Your job is to use the cross-price elasticity between guppy gummies and the other goods to determine which goods your marketing firm should advertise together.
#### Task
Complete the first column of the following table by computing the cross-price elasticity between guppy gummies and flopsicles, and then between guppy gummies and kipples. In the second column, determine if guppy gummies 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 guppy gummies.
#### Table
| Relative to Guppy Gummies | Cross-Price Elasticity of Demand | Complement or Substitute | Recommend Marketing with Guppy Gummies |
|---------------------------|-----------------------------------|--------------------------|---------------------------------------|
| Flopsicles | | | |
| Kipples | | | |
### Instructions for Completing the Table
1. **Calculate Cross-Price Elasticity of Demand:**
- Use the formula:
\[
E_{xy} = \frac{\text{\% Change in Quantity Demanded of Good Y}}{\text{\% Change in Price of Good X}}
\]
- For flopsicles:
- \% Change in Quantity Demanded of Flopsicles = +5%
- \% Change in Price of Guppy Gummies = -4%
- Calculation: \( E_{xy} = \frac{5\%}{-4\%} = -1.25 \)
- For kipples:
- \% Change in Quantity Demanded of Kipples = -5%
-](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F88d58220-4c99-4038-b9cd-5ff14daeb0cb%2F6b541c6b-ac79-4459-936b-2ee9c08085e8%2Fb4hnvv8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Understanding Cross-Price Elasticity in Marketing
#### Scenario
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: guppy gummies, flopsicles, 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 guppy gummies decreases by 4%, the quantity of flopsicles sold increases by 5% and the quantity of kipples sold decreases by 5%. Your job is to use the cross-price elasticity between guppy gummies and the other goods to determine which goods your marketing firm should advertise together.
#### Task
Complete the first column of the following table by computing the cross-price elasticity between guppy gummies and flopsicles, and then between guppy gummies and kipples. In the second column, determine if guppy gummies 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 guppy gummies.
#### Table
| Relative to Guppy Gummies | Cross-Price Elasticity of Demand | Complement or Substitute | Recommend Marketing with Guppy Gummies |
|---------------------------|-----------------------------------|--------------------------|---------------------------------------|
| Flopsicles | | | |
| Kipples | | | |
### Instructions for Completing the Table
1. **Calculate Cross-Price Elasticity of Demand:**
- Use the formula:
\[
E_{xy} = \frac{\text{\% Change in Quantity Demanded of Good Y}}{\text{\% Change in Price of Good X}}
\]
- For flopsicles:
- \% Change in Quantity Demanded of Flopsicles = +5%
- \% Change in Price of Guppy Gummies = -4%
- Calculation: \( E_{xy} = \frac{5\%}{-4\%} = -1.25 \)
- For kipples:
- \% Change in Quantity Demanded of Kipples = -5%
-
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