Question

In: Economics

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 isPCoke=1000+PPepsi-Q,PCoke=500 and PPepsi=100. What is the interpretation of your result?

Solutions

Expert Solution

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


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