Question

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: penguin patties, flopsicles, 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 penguin patties decreases by 5%, the quantity of flopsicles sold increases by 4% and the quantity of mookies sold decreases by 6%. Your job is to use the cross-price elasticity between penguin patties and the other goods to determine which goods your marketing firm should advertise together.

What is the cross-price elasticity demand?

Answer 1