Question
In: Economics
1.-The Belmount Company produces boots that sell for $ 20 a pair. During 2019, their sales...
1.-The Belmount Company produces boots that sell for $ 20 a
pair. During 2019, their sales volume was 10,000 pairs per month.
In January 2020, a competitor, the V.R. Nelson Company cut the
prices of its boots from $ 25 to $ 18 a pair. The following month,
Belmount sold just 7,000 pairs of boots.
a) Determine the cross-arc elasticity of demand between Belmount
and Nelson boots (assume that the Belmount price remains
constant).
b) Suppose the price arc elasticity for Belmount boots is -2.0.
Also, that Nelson kept the price of her boots at $ 18. How much
price reduction will Belmount need to establish to increase its
sales volume to the previous figure of 10,000 pairs per
month?
c) Compare the total revenue of Belmount with sales volumes of
7,000 and 10,000 pairs after the Nelson Company's price
reduction.
d) Does the analysis suggest the boots of the two companies are
good or bad substitutes?
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
The Belmount Company produces boots that sell for $ 20 a pair. During 2019, their sales...
The Belmount Company produces boots that sell for $ 20 a pair.
During 2019, their sales volume was 10,000 pairs per month. In
January 2020, a competitor, the V.R. Nelson Company cut the prices
of its boots from $ 25 to $ 18 a pair. The following month,
Belmount sold just 7,000 pairs of boots.
a) Determine the cross-arc elasticity of demand between Belmount
and Nelson boots (assume that the Belmount price remains
constant).
b) Suppose the price arc elasticity...
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