Determine the cross price elasticity of demand of Coke and the type of good relative to Pepsi.

Determine the cross price elasticity of demand of Coke and the type of good relative to Pepsi. The inverse demand function isP^Coke=1000+P^Pepsi-Q,P^Coke=500 and P^Pepsi=100. What is the interpretation of your result?

Solutions

Expert Solution

P^Coke=1000+P^Pepsi-Q

P^Coke =Pc

P^Pepsi =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

Rahul Sunny answered 1 year ago

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