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, frizzles, and mookies. 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 5%, the quantity of frizzles sold increases by 4% and the quantity of mookies sold decreases by 6%. 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. Complete the first column of the following table by computing the cross-price elasticity between guppy gummies and frizzles, and then between guppy gummies and mookies. 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. Relative to Guppy Gummies Cross-Price Elasticity of Demand Complement or Substitute Recommend Marketing with Guppy Gummies Frizzles 11.00 Substitute Yes Mookies 10.00 Complement No
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, frizzles, and mookies. 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 5%, the quantity of frizzles sold increases by 4% and the quantity of mookies sold decreases by 6%. 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. Complete the first column of the following table by computing the cross-price elasticity between guppy gummies and frizzles, and then between guppy gummies and mookies. 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. Relative to Guppy Gummies Cross-Price Elasticity of Demand Complement or Substitute Recommend Marketing with Guppy Gummies Frizzles 11.00 Substitute Yes Mookies 10.00 Complement No
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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,
frizzles, and mookies. 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 5%, the quantity of frizzles
sold increases by 4% and the quantity of mookies sold decreases by 6%. 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.
Complete the first column of the following table by computing the cross-price elasticity between guppy gummies and frizzles, and then between guppy
gummies and mookies. 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.
Relative to Guppy Gummies
Cross-Price Elasticity of Demand
Complement or Substitute
Recommend Marketing with Guppy Gummies
Frizzles
11.00
Substitute
Yes
Mookies
10.00
Complement
No
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