In: Economics
Determine the cross price elasticity of demand of Coke and the type of good relative to Pepsi. The inverse demand function isPCoke=1000+PPepsi-Q,PCoke=500 and PPepsi=100. What is the interpretation of your result?
PCoke=1000+PPepsi-Q
PCoke =Pc
PPepsi =Pp
Pc=1000+Pp-Q
converting to normal form
Q=1000+Pp-Pc
Q=1000+100-500=600
Cross price elasticity is:
The elasticity is 0.17 and the good substitutes good as the elasticity is positive